The Monetary Policy Committee of the RBI maintained repo rate unchanged at 5.50% at its policy review today, while retaining its ‘neutral’ policy stance
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The Monetary Policy Committee of the RBI maintained repo rate unchanged at 5.50% at its policy review today, while retaining its ‘neutral’ policy stance. Both decisions were backed by all 6 MPC members. Although the central bank retained its FY26 GDP growth forecast of 6.5%, it slashed its FY26 CPI inflation forecast by 60 bps to 3.1%. The decision to hold rates steady despite the projection of record low CPI inflation signals that the MPC is ready to look through the food led decline in inflation, which is inherently volatile. With inflation projected to spike towards 4.4-4.9% after a gap of 2 quarters, the ‘neutral’ policy setting was assessed to be appropriate at this juncture, esp. after considering the front-loaded easing of both repo rate and the CRR by 100 bps each between Feb-Jun 2025. This clearly raises the bar for any incremental monetary easing. However, if the tariff situation for India remains unfavorable and downside risks to growth emerge, then another 25 bps rate cut by Oct/Dec 2025 would become possible. We retain our 10Y g-sec yield call of 6.20% for end FY26.