RBI Governor Sanjay Malhotra during the August MPC announcement, where the central bank held the repo rate steady.
MUMBAI: The Reserve Bank of India’s Monetary Policy Committee kept the repo rate unchanged at 5.25% on August 5, marking its third consecutive pause. All six members voted unanimously in favour of holding rates, while retaining a neutral policy stance that keeps the central bank flexible to respond as conditions evolve.
Alongside the rate decision came an encouraging update to the RBI’s economic outlook. The central bank raised its FY27 GDP growth forecast to 6.7%, up from 6.6% previously, while simultaneously lowering its full year inflation projection to 5.0%. This combination, stronger growth paired with softer inflation expectations, reflects a healthy underlying picture for the Indian economy.
Growth on Solid Fundamentals
Governor Sanjay Malhotra pointed to strong first quarter momentum across several fronts. Private consumption remained robust, supported by steady urban spending and a recovering rural economy. Capital formation continued at a healthy pace, driven by public infrastructure spending alongside private corporate investment and construction activity. On the external side, both services and merchandise exports contributed positively, while manufacturing output expanded during the quarter, reinforcing India’s position as the world’s fastest growing major economy.
Inflation Remains Well Contained
While headline inflation ticked up to 4.4% in June, ending a stretch of readings below the RBI’s target, the broader picture remains reassuring. The quarter’s overall inflation print actually came in 30 basis points below the central bank’s earlier estimate. More notably, core inflation, which strips out volatile food and fuel prices, held steady at 3.9% and the RBI meaningfully lowered its full year core inflation forecast by 40 basis points to 4.3%.
This distinction matters as Governor Malhotra was clear that the price pressures driving headline inflation remain concentrated in food and energy, showing little sign of spreading more broadly across the economy. This suggests underlying demand remains well balanced rather than overheated, giving the central bank room to stay patient.
A Calm Read on the Path Ahead
The RBI does expect headline inflation to rise somewhat in the second half of the year, peaking around 5.9% in the third quarter before easing back to 5.5% by the fourth quarter. Importantly the Governor characterised this as a supply side pattern tied to seasonal food costs and energy prices rather than a demand driven concern, a distinction that explains why the central bank felt comfortable holding rates steady despite the expected near term uptick.
Currency and Capital Flows Show Resilience
India’s external position also offered reassuring signals. The rupee strengthened by 39 paise against the dollar following the policy announcement, trading near 94.89, supported by a softer dollar index and easing crude oil prices. A standout data point was the strong performance of the Foreign Currency Non-Resident deposit scheme, which drew in $36.7 billion, well above expectations and helped rebuild foreign exchange reserves by an estimated $20 billion. The Governor confirmed there are no plans to end this scheme early, with two months still remaining in its window.
Foreign portfolio investment flows also turned positive heading into this policy review, led by renewed interest in Indian government debt, a helpful sign of continued global confidence in India’s fixed income markets.
Stability for Borrowers and Businesses
For millions of Indian borrowers with floating rate loans tied to the repo rate, this pause means continued payment stability, with EMIs holding steady rather than fluctuating. This kind of predictability is valuable for both households managing budgets and businesses planning capital expenditure, particularly for NBFCs and corporate borrowers who can now plan medium term borrowing costs with greater confidence.
While housing sales data from top cities showed some softness in the June quarter, stable interest rates provide a steady foundation that keeps borrowing costs from rising further, supporting gradual recovery even in more price sensitive segments over time.
A Measured, Confident Approach
Governor Malhotra described the central bank’s posture plainly, as neither dovish nor hawkish, but firmly data dependent. This reflects a steady, considered approach: having already delivered a rate cut in December and held a neutral stance since mid-2025, the RBI continues to signal that its easing cycle isn’t over, while remaining ready to adjust as clearer inflation trends emerge over the coming months.
With growth revised upward, core inflation trending lower, and external buffers strengthening, India’s monetary policy trajectory continues to reflect calm, steady stewardship of an economy that remains fundamentally on solid footing.
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