Sanjay Malhotra,Governor, Reserve Bank of India
The Reserve Bank on Wednesday retained the GDP growth projection for the current fiscal year at 6.5 per cent while lowering the inflation forecast to 3.1 per cent from 3.7 per cent.
Mumbai: After three successive interest cuts, the Reserve Bank on Wednesday decided to keep policy rate unchanged at 5.5 per cent and retained the neutral stance, weighed by concerns over tariff uncertainties.
Announcing the third bi-monthly monetary policy of the current fiscal, RBI Governor Sanjay Malhotra said that the growth rate projection for FY26 has been retained at 6.5 per cent.
He further said the Monetary Policy Committee (MPC) unanimously decided to keep the short-term lending rate or repo rate unchanged at 5.5 per cent with neutral stance.
With regard to inflation forecast, the governor lowered the projection to 3.1 per cent from the earlier estimate of 3.7 per cent for the current financial year.
Malhotra said the above normal southwest monsoon, lower inflation, rising capacity utilisation, and congenial financial conditions continue to support domestic economic activity.
The supportive monetary, regulatory and fiscal policies, including robust government capital expenditure, should also boost demand. The services sector is expected to remain buoyant, with sustained growth in construction and trade in the coming months.
Since February 2025, the RBI has reduced the policy rate by 100 basis points. In its previous policy review in June, it had trimmed the repo rate by 50 basis points to 5.5 per cent.
The central bank has been tasked by the government to ensure that consumer price index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February and April, and 50 basis points in June amidst easing retail inflation.
The six-member rate-setting panel held the policy rate in a unanimous vote and decided to continue with a “neutral” stance.
Global trade challenges continue to linger but prospects for the Indian economy remain “bright”, Governor Sanjay Malhotra said in his statement.
While headline inflation is much lower than expected, it is largely due to volatile food prices, Malhotra said.
The surprise U.S. imposition of a 25% tariff on imports from India from August 1 could shave off up to 40 basis points from that level, while stunting business investment, economists have said. Just weeks ago, Indian officials had hoped to strike a deal that would cap tariffs at 15%.
Inflation slowed to a six-year low of 2.10% in June and is expected to fall to record lows when July data is released next week, before picking up again later in the year.
The inflation outlook has become “more benign”, Malhotra said, cutting the central bank’s inflation forecast for the current financial year to 3.1% from 3.7% earlier.
India’s benchmark 10-year bond yield rose 4 bps to 6.3701%, while the rupee was little changed at 87.7350. The benchmark equity indexes were down around 0.2% each
The retail inflation is trending below 4 per cent since February this year. It eased to a six-year low of 2.1 per cent in June, aided by an easing of food prices and favourable base effect.
Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, slipped to (-)1.06 per cent in June from 0.99 per cent in May. The decline was largely driven by lower prices in key categories such as vegetables, pulses, meat and fish, cereals, sugar, milk, and spices.
The MPC consists of three RBI officials — Sanjay Malhotra (Governor), Poonam Gupta (Deputy Governor), Rajiv Ranjan (Executive Director) — and three external members — Nagesh Kumar (Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi), Saugata Bhattacharya (Economist), and Ram Singh (Director, Delhi School of Economics).