RBI keeps key lending rate steady at 5.5% amid global trade uncertainty

India Today

5 days ago

The Reserve Bank of India (RBI) on Wednesday decided to keep the key repo rate unchanged at 5.5%, as the Monetary Policy Committee (MPC) concluded its three-day meeting led by Governor Sanjay Malhotra."The Monetary Policy Committee, MPC, met on the 4th, 5th and 6th of August to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate under the Liquidity Adjustment Facility unchanged at 5.5%," said RBI Governor Sanjay Malhotra.He further said that the Standing Deposit Facility rate will remain at 5.25%, and the Marginal Standing Facility rate and the Bank Rate will continue at 5.75%. "The MPC also decided to continue with a neutral stance," he added.INFLATION CONCERNS STILL LINGERGovernor Malhotra explained the reason behind keeping rates unchanged, pointing to the movement in inflation numbers over recent months."The MPC noted that while headline inflation is much lower than projected earlier, it is mainly due to volatile food prices, especially in vegetables. Core inflation, on the other hand, has remained steady around the 4% mark as anticipated. Inflation is projected to go up from the last quarter of this financial year," he said.The RBI has been closely watching inflation trends, particularly food prices, which have been unpredictable in recent months. While the central bank is relieved by the overall cooling in inflation, there are still concerns that it might rise again toward the end of the year.GROWTH STABLE, BUT RISKS REMAINOn the economic growth front, the Governor said that India's growth remains strong but not quite at the level the central bank had earlier hoped for."Growth is robust and as our earlier projections go, of course, below our expectations. The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing," said Malhotra.He explained that the full impact of the 100 basis points cut in the repo rate since February is still being felt. 'The impact of the 100 basis points rate cut since February 2025 on the broader economy is still unfolding,' he said.WAITING FOR EARLIER RATE CUTS TO WORKGiven that the RBI has already cut rates by 100 basis points over three policy meetings this year, Malhotra said the central bank will now wait to see how those changes impact borrowing costs and economic activity.'On balance, therefore, the current macroeconomic conditions, outlook and the uncertainties call for continuation of the policy repo rate of 5.5% and wait for further transmission of the front-loaded rate cut to the credit markets and to the broader economy. Accordingly, the MPC unanimously voted to keep the repo rate unchanged,' the Governor said.NEUTRAL STANCE TO CONTINUELooking ahead, the RBI said it would closely track incoming data before making any further changes to its policy approach.'The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path. Accordingly, all members decided to continue with a neutral stance," Malhotra said.Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said that the MPC's decision to keep rates unchanged comes in the wake of global uncertainties, even as inflation remains benign and downside risks to growth persists."With inflation likely to trend higher post the near term favourable trends, the bar for rate cuts ahead is set very high. We can see some room for the last leg of easing only if growth momentum slows significantly," she added.- Ends
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