RBI keeps repo rate unchanged at 5.25%

Raises inflation projection; GDP growth to slow to 6.9 per cent in FY27

The Reserve Bank of India (RBI), on Wednesday, decided to keep key policy interest rates unchanged with a neutral stance, giving indication about flexibility on future monetary policy amid continued uncertainty over the West Asia conflict.

Repo rate, the interest at which the RBI lends money to commercial banks for their short-term needs, stands unchanged at 5.25 per cent.

The 6-member Monetary Policy Committee (MPC) unanimously took the decision to maintain the status quo on key rates.

The MPC also decided to continue with the neutral stance. This means the rates can be increased or cut in the next policy review, which is scheduled in the first week of June.

Inflation forecast

The central bank revised its consumer price index (CPI) inflation forecast for 2026-27 upward to 4.6 per cent from its earlier projection of 4 per cent. The country’s gross domestic product (GDP) growth is estimated to decline to 6.9 per cent from the projected 7.6 per cent in 2025-26.

The RBI flagged downside risks to growth from supply chain disruptions and the ongoing West Asia conflict.

“The West Asia conflict is likely to impede growth. Higher input costs associated with increase in energy prices and international freight and insurance costs along with supply-chain disruptions
that would constrain availability of key inputs for downstream sectors, would impair growth,” said RBI Governor Sanjay Malhotra.  

The MPC noted that since the last policy meeting, geopolitical uncertainties have heightened significantly. Headline inflation remains contained and below the target. “However, upside risks to the inflation outlook, driven by increased energy price pressures and probable weather disturbances affecting food prices, have increased. Core inflation pressures remain muted, although supply chain dislocations and the risk of second-round effects render the future inflation trajectory uncertain,” Malhotra said.

According to analysts, the West Asia conflict has impacted the RBI’s policy rate decisions and projections on GDP growth and inflation.

“Out of the eight statements by the current governor, this statement is most cautious/hawkish in our opinion but does not mean a rate hike is imminent,” SBI Research said in a note.

Impact on growth 

“The choice of words and the latent signal the latest statement carries reflects deep understanding of the evolving geo-economic situation in the world without hinting at any imminent rate hike with regulatory gaze hobbling between growth and inflationary concerns,” it said. CPI inflation for 2026-27 is projected at 4.6 per cent with Q1 at 4 per cent; Q2 at 4.4 per cent; Q3 at 5.2 per cent; and Q4 at 4.7 per cent. Core inflation is projected at 4.4 per cent.

The projections on growth and inflation — the first estimates by the MPC for fiscal 2027 following the release of the new data series — reflect the recognition that the impact on growth could be greater than that on inflation in the near term, said Dipti Deshpande, Principal Economist, Crisil.