RBI Maintains Repo Rate at 5.25% Amid Economic Challenges

RBI's Decision on Repo Rate

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has reached a unanimous decision to keep the repo rate steady at 5.25%, maintaining a neutral stance. RBI Governor Sanjay Malhotra pointed out the economic disruptions caused by the ongoing conflict in Iran, noting that India has navigated these challenges adeptly. He remarked, "Energy shocks have posed significant challenges to the economy."

Governor Malhotra also indicated that the repercussions of supply shocks are expected to impact the economy starting in the fourth quarter. He mentioned that the Consumer Price Index (CPI) inflation remains below the target, despite global disturbances, and the economic outlook is uncertain due to forecasts for the southwest monsoon and potential El Niño effects.

During the April MPC meeting, the RBI had previously decided to keep the repo rate at 5.25%, alongside maintaining the standing deposit facility rate at 5% and the marginal standing facility rate at 5.5%. The discussions in April were influenced by the volatility in global crude oil prices resulting from the Iran conflict.

Since the war began, India has experienced four consecutive increases in petrol and diesel prices within a short span, totaling nearly Rs 7.5 per litre. The first price hike occurred on May 15, raising costs by Rs 3 per litre, followed by an increase of approximately 90 paise on May 19, with further hikes thereafter.

In its latest MPC meeting, the RBI projected a GDP growth rate of 6.9% for the current financial year (FY27) and 7.6% for the previous financial year (FY26). Additionally, the RBI has adjusted its retail inflation forecast for FY27 to 4.6%, up from the previous estimate of 4.2%.