India’s central bank has opted for a steady hand in its latest monetary policy review, maintaining the repo rate at 5.50% while projecting a sharply lower inflation trajectory and reaffirming its confidence in the economy’s growth momentum. The Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, concluded its three-day meeting on August 6, 2025, against a backdrop of easing domestic inflation and rising global trade tensions.
Key Highlights from the August 2025 MPC Meeting
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Repo Rate: Held steady at 5.50%, following a cumulative 100 bps cut since February
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Policy Stance: Maintained as “neutral,” signaling flexibility amid evolving conditions
CPI Inflation Forecast:
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FY26 Q2 revised down to 2.1% (from 3.4%)
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Full-year CPI forecast lowered to 3.1% (from 3.7%)
GDP Growth Outlook: Retained at 6.5% for FY26, with quarterly projections:
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Q1: 6.5%
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Q2: 6.7%
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Q3: 6.6%
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Q4: 6.3%
Inflation Trends and Policy Implications
June CPI inflation fell to 2.1%, the lowest since January 2019, driven by:
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Deflation in vegetables, pulses, and spices
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Stable fuel prices and easing food inflation
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Core inflation remains sticky at 4.6%, reflecting persistent service sector pressures
RBI acknowledged that while headline inflation is benign, transmission of previous rate cuts is still unfolding
Liquidity and Market Operations
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RBI reaffirmed its commitment to maintaining the weighted average call rate (WACR) close to the policy rate
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The central bank will conduct liquidity operations across various tenors to ensure smooth monetary transmission
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A group within RBI recommended enhanced liquidity tools to stabilize short-term rates and support credit flow
Sectoral Market Response
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Nifty PSU Bank Index turned positive, last up 0.2%, led by gains in Indian Bank, Bank of Baroda, and Canara Bank
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Nifty Bank Index reversed early losses, last up 0.12%, buoyed by optimism around liquidity support and stable policy stance
Governor’s Commentary
Governor Sanjay Malhotra emphasized:
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The Indian economy is navigating a steady growth path, supported by resilient consumption and investment
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Monetary policy has appropriately used available space to support growth without compromising inflation targets
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The RBI remains vigilant amid global uncertainties, including the 25% US tariff on Indian exports effective August 7
Outlook Ahead
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Economists expect RBI to remain cautious but open to further easing if inflation stays below target and growth risks intensify
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A final 25 bps rate cut later in the year remains a possibility, especially if festive demand and credit growth falter
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RBI’s liquidity management and forward guidance will be key to sustaining market confidence and macroeconomic stability
Source: RBI Monetary Policy Statement, August 2025; Business Today; Economic Times; Moneycontrol; MSN News; Financial Express; Zee Business; News18; RBI Press Releases.
