Monetary Policy – 06th Aug, 2025
RBI Holds Repo Rate at 5.50% — A Neutral Pause Amid Uncertainties
🔹 Key Highlights
- The Monetary Policy Committee (MPC) unanimously chose to keep the policy repo rate unchanged at 5.50%, with Standing Deposit Facility at 5.25% and MSF and Bank Rate at 5.75%
- The monetary policy stance remains ‘Neutral’, reflecting a wait‑and‑watch approach — future action will hinge on inflation and growth dynamics.
🔹 Growth and Inflation Outlook
- GDP growth is projected at ~6.5% in FY 2025‑26, unchanged from prior estimates.
- Retail inflation forecast revised down from 3.7% to 3.1% for FY 2025‑26, signaling firmer inflation control.
🔹 Rationale Behind the Decision
- India has already realized a cumulative 100 bps rate reduction in 2025 (25 bps in February, April, and 50 bps in June), providing a cushion for growth-support without further easing at present
- With headline inflation at ~2.1% in June, well below the 4% target, inflation risk feels under control
- Nevertheless, external threats—especially a new U.S. 25% tariff threat—pose downside risks, and the RBI is choosing caution accordingly.
Implications for Your Clients
| Clients | Implication |
| Borrowers | No immediate relief on EMI or lending rates—as repo rate stays flat, borrowing costs remain steady. |
| Savings & Deposits | Existing deposit rates unlikely to come down in the short term; however, rate cuts in future could compress yields. |
| Inflation-sensitive sectors | Lower inflation forecasts ease pricing pressure; helps FMCG, consumer staples, retail clients plan better. |
| Currency & Exports | If the rupee weakens further, export competitiveness improves—though importers face headwinds on currency cost. |
| Equity Investors | A steady policy stance provides consistency, but global trade tensions may keep sentiment cautious. |
| Future Outlook | The neutral tone preserves RBI flexibility. If growth dips or inflation stays below target, a 25 bps cut might come by October/December (as expected by SBI and economists) |
Strategic Takeaways
- Despite expectations of a final rate cut, the MPC elected to pause in view of external trade turbulence and the need to better gauge inflation pass-through.
- The downward revision in inflation forecast reinforces RBI’s confidence in inflation trajectory, providing breathing room for policy flexibility.
- Given the volatile trade environment and geopolitics, the neutral stance signals caution—either preserving room to cut or tightening again if external friction intensifies.
Happy Investing!
(Stay patient, stay diversified, and stay focused on the long term.)
Saurabh Mishra
Founder & CEO – INVESTMENT LANDSCAPE
Reaction Quote | Upasna Bhardwaj, Chief Economist,
Kotak Mahindra Bank
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, “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.”
- Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank
