The Reserve Bank of India (RBI) on Wednesday kept the policy repo rate unchanged at 5.25 per cent for the third consecutive Monetary Policy Committee (MPC) meeting, citing global uncertainties arising from the ongoing West Asia conflict while maintaining a neutral policy stance.
Announcing the MPC’s decision, RBI Governor Sanjay Malhotra said the committee unanimously voted to retain the benchmark lending rate as the Indian economy continues to demonstrate resilience despite geopolitical tensions and supply chain disruptions.
RBI Raises GDP Forecast, Lowers Inflation Projection
The central bank revised its FY2026-27 GDP growth forecast upward to 6.7 per cent, compared to the earlier estimate of 6.6 per cent, reflecting stronger-than-expected economic performance during the April-June quarter.
At the same time, the RBI lowered its Consumer Price Index (CPI) inflation forecast to 5 per cent from the previous projection of 5.1 per cent.
However, Governor Malhotra noted that headline retail inflation rose to 4.38 per cent in June, exceeding the RBI’s medium-term target of 4 per cent.
West Asia Conflict Continues to Pose Risks
The RBI highlighted that renewed tensions in West Asia have disrupted global trade routes, increased energy prices and added uncertainty to the global economic outlook.
Malhotra said resilient domestic demand continues to support India’s economy but cautioned that geopolitical tensions, volatility in global financial markets and the possibility of El Niño remain key downside risks to growth.
The central bank also warned that higher crude oil prices, slowing global trade and trade policy uncertainties could widen India’s current account deficit.
Inflation Expected to Rise Before Easing
The RBI expects headline inflation to increase in the near term, driven mainly by higher food and fuel prices, before peaking in the third quarter of the current financial year and gradually easing thereafter.
The Governor said the recent increase in inflation is not broad-based and emphasised that the central bank would require greater clarity on the inflation trajectory before considering any policy changes.
He added that core inflation, excluding precious metals, is expected to remain moderate and gradually align with overall inflation by the end of the financial year.
Banking System Liquidity Remains Comfortable
According to the RBI, liquidity conditions remain comfortable, with average banking system liquidity staying above ₹1 lakh crore since June.
Malhotra said the return of currency to banks during the monsoon season, the drawdown of government cash balances and measures to attract capital inflows are expected to further support liquidity.
He also noted that short-term money market rates, including commercial papers and certificates of deposit, moderated during July.
Rupee Under Pressure
The RBI acknowledged that the Indian rupee has remained under pressure in 2026 due to rising crude oil prices, capital outflows, a widening trade deficit and the strengthening US dollar.
The rupee has depreciated by around 7 per cent this year and has weakened significantly since the escalation of the Iran conflict earlier in 2026.
