RBI keeps repo rate unchanged at 5.5% amid global trade uncertainty
PTC Web Desk: The Reserve Bank of India (RBI) has opted to maintain the key policy repo rate at 5.50%, RBI Governor Sanjay Malhotra announced on Wednesday. The decision, taken unanimously by the six-member Monetary Policy Committee (MPC), reflects a cautious approach amid lingering global trade tensions and easing domestic inflation.
The MPC, which convened on August 4, 5, and 6, voted to retain a “neutral” policy stance. Governor Malhotra explained that the committee undertook a detailed assessment of macroeconomic indicators and global financial trends before arriving at the decision.
This policy pause follows a 50-basis-point cut in June, bringing the repo rate down to 5.5% as inflation showed signs of moderation. Malhotra confirmed that near- and medium-term inflation levels now fall within the central bank’s comfort zone, aided by subdued food prices. This inflationary relief has given the RBI greater room to maneuver its monetary policy.
"Despite persistent challenges in global trade, India’s economic outlook remains positive," Malhotra said. However, he cautioned that while current headline inflation is low, this is largely due to volatile food prices and may trend upwards later in the year.
So far in 2025, the RBI has cut the repo rate by 100 basis points, reflecting the central bank’s response to cooling price pressures. Economists anticipate the possibility of further but limited rate cuts, depending on how global and domestic conditions evolve. Some analysts suggest another 50-basis-point reduction could be on the cards if inflation stays low and external uncertainties intensify.
India is also bracing for additional economic headwinds. Starting Friday, a 25% tariff will be imposed on Indian exports to the US, with further levies threatened due to India’s continued oil imports from Russia. While Indian officials are engaged in ongoing trade negotiations with Washington, they have defended their energy strategies.
Meanwhile, weak job data from the US has increased the likelihood of a rate cut by the Federal Reserve, with market indicators showing an 88% probability of easing in September.
Despite global pressures, the RBI has retained its economic growth projection at 6.5% for the current fiscal year. Still, economists warn that US tariffs could trim up to 40 basis points off this growth estimate and deter business investments.
- PTC NEWS
