The Reserve Bank of India (RBI) on Friday left the repo rate unchanged at 5.25 per cent, a move that was widely anticipated by markets. The decision was taken unanimously by the six-member Monetary Policy Committee (MPC) after two days of deliberations.
Announcing the policy decision, RBI Governor Sanjay Malhotra said India remains resilient despite a challenging global backdrop marked by geopolitical tensions and rising energy prices.
Global risks and monsoon concerns in focus
At the start of his address, Malhotra noted that the global economic outlook remains uncertain amid the ongoing Iran conflict. He also flagged weather-related risks, saying a weak monsoon could affect both economic growth and inflation, though he added that "adequate stocks provide comfort".
The Central bank retained its FY25 GDP growth forecast at 7.6 per cent. The Marginal Standing Facility (MSF) rate and Bank Rate were also kept unchanged at 5.5 per cent.
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Inflation projection revised upward
While core inflation remained stable at 3.7 per cent during March and April, the RBI raised its inflation outlook for the current financial year.
According to the Central bank, CPI inflation for 2026-27 is now projected at 5.1 per cent, 50 basis points higher than the previous estimate. The revision reflects concerns over elevated crude oil prices and supply-side pressures.
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The RBI noted that the Indian crude basket averaged around $110 per barrel over the past two months and indicated that average oil prices this year are likely to remain significantly higher than earlier assumptions. It also pointed out that the partial pass-through of higher global crude prices to petrol and diesel rates began in May.
RBI cites geopolitical and supply-side challenges
Explaining the policy stance, Malhotra said, "The global environment has deteriorated since the last policy meeting with the conflict lingering amidst a fragile truce. The adverse implications of the extended disruption in supply chains and elevated energy prices are reflected in the moderation of growth and increase in inflation projections from the April policy as discussed above."
He further added, "CPI inflation remains below the target despite the global shock as the passthrough to domestic prices has been limited."
On growth, the governor said, "As for growth, elevated energy prices coupled with global supply constraints are having adverse spillovers on economic activity. While domestic demand remains resilient and manufacturing and services sectors activity continue to expand, there are incipient signs of moderation in some sectors as suggested by high frequency indicators."
