RBI's monetary policy committee decides to pause, lowers inflation forecast
RBI governor Sanjay Malhotra said, 'The MPC voted unanimously to keep the policy repo rate under the Liquidity Adjustment Facility unchanged at 5.5%… [and] to continue with the neutral stance.'
Malhotra said the decision was based on 'the current macroeconomic conditions, outlook and the uncertainties' which called for 'wait[ing] for further transmission of the front loaded rate cut to the credit markets and to the broader economy.'
Following the decision, the standing deposit facility rate remains at 5.25% and the marginal standing facility rate and the bank rate at 5.75%.
The RBI noted that the decision came against a backdrop of 'favourable… monsoon season,' resilient domestic growth, and some easing in geopolitical uncertainties, although 'global trade challenges continue to linger' and 'policymakers will have a tough task navigating… modest growth, sticky inflation and elevated public debt levels.'
On inflation, Malhotra said the outlook for FY26 was 'more benign than expected in June,' with the forecast now at 3.1% compared with the earlier 3.7%, aided by 'large favourable base effects… healthy Kharif sowing… and comfortable buffer stocks.' The revised quarterly CPI projections are Q2 at 2.1%, Q3 at 3.1% and Q4 at 4.4%, with Q1 FY27 seen at 4.9%.
The forecast for real GDP growth in FY26 has been retained at 6.5%, with quarterly projections unchanged at Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6% and Q4 at 6.3%.
Malhotra said growth was 'holding up and… broadly evolving along the lines of our assessment' supported by government capex, steady monsoon, and services sector resilience.
On monetary transmission, he noted that the 'impact of the 100 basis points rate cut since February 2025… is still unfolding,' with the weighted average lending rate on fresh rupee loans down 71 bps and deposit rates on fresh deposits down 87 bps.
'Transmission to lending rates has been broad based across all sectors,' he added.
Commenting on the external sector, Malhotra said the current account deficit had moderated to 0.6% of GDP… from 0.7%, supported by 'robust services exports and strong remittances receipts' despite a higher merchandise trade deficit. Foreign exchange reserves stood at $688.9 billion, sufficient to cover more than 11 months of our merchandise imports.
On liquidity, he said system liquidity had been 'in surplus… about 3 lakh crore rupees per day' and would be further supported as the CRR cut comes into effect. The RBI would 'continue to be nimble and flexible in its liquidity management' to ensure smooth transmission.
Concluding, Malhotra said the RBI was leveraging 'the room provided by a significant moderation in inflation' to take 'decisive and forward-looking measures to support growth,' while remaining vigilant on growth and inflation dynamics to 'chart out the appropriate monetary policy path.'
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