RBI keeps rates on hold, cuts inflation estimate for FY26

MUMBAI: The six-member Monetary Policy Committee (MPC) at its 56th meeting voted unanimously to keep the policy repo rate unchanged at 5.5% and retained its neutral stance even as it maintained growth forecast for FY26 at 6.5% and lowered inflation projection to 3.1% from its earlier estimate of 3.7%. RBI governor Sanjay Malhotra said the decision was based on “the current macroeconomic conditions, outlook and uncertainties” which called for “waiting for further transmission of the front-loaded rate cut to the credit markets and to the broader economy”. Following the decision, the repo rate continues to remain at 5.5% standing deposit facility rate at 5.25%, and the marginal standing facility rate and bank rate at 5.75%. RBI has so far cut the repo rate by 100 basis points in 2025.The RBI noted that the decision came against a backdrop of favourable monsoon season, resilient domestic growth, and some easing in geopolitical uncertainties, although “global trade challenges continue to linger” and “policymakers will have a tough task navigating modest growth, sticky inflation and elevated public debt levels”. “The headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook,” the Monetary Policy Committee’s formal resolution said.On inflation, Malhotra said the outlook for FY26 was “more benign than expected in June,” with the forecast now at 3.1% compared with the earlier 3.7%, aided by “large favourable base effects… healthy Kharif sowing… and comfortable buffer stocks”. The revised quarterly CPI projections are: Q2 at 2.1%, Q3 at 3.1% and Q4 at 4.4%, with Q1 FY27 seen at 4.9%.The forecast for real GDP growth in FY26 has been retained at 6.5%, with quarterly projections unchanged at Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6% and Q4 at 6.3%. Malhotra said growth was “holding up and… broadly evolving along the lines of our assessment” supported by govt capex, steady monsoon, and services sector resilience. On monetary transmission, he noted that the “impact of the 100 basis points rate cut since Feb 2025... is still unfolding,” with the weighted average lending rate on fresh rupee loans down 71 bps and deposit rates on fresh deposits down 87 bps. “Transmission to lending rates has been broad based across all sectors,” he added.