<p>The unanimous decision of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) to leave the policy rate unchanged at 5.5% was not unexpected, as it had already effected a 100 bps reduction in rates since February 2025. The last meeting in June had seen a hefty cut of 50 points. The MPC’s commentary indicated that there may not be any further reduction in the policy repo rate in this cycle. The MPC also decided to continue with the neutral stance. The global and domestic environment is such that it is better to avoid any decision concerning the economy now. RBI Governor Sanjay Malhotra made it clear when he said that “the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy”. The rates remain above the pre-pandemic levels now, while the real interest level adjusted for inflation is 2-3%. </p>.<p>The central bank has indicated that the inflationary pressure in the economy has subsided. Retail inflation had touched a low of 2.1% in June. The RBI has lowered its inflation forecast for the year to 3.1% from 3.7% earlier. This is because of the fall in food prices and the expectation of a better kharif crop following a good monsoon. But core inflation, which excludes food and fuel, moved up to 4.4% in June. The RBI expects inflation to go up to 4.4% in the fourth quarter of 2025-26 and further to 4.9% in the first quarter of 2026-27. This is because “unfavourable base effects and demand side factors from policy actions come into play”. When inflation is projected to be around 4.5% in 2026, there is not much scope for further rate cuts.</p>.<p class="bodytext">The central bank has retained its projections for growth at 6.5% this year, in line with its expectations in April and June, though it was expected that the forecasts would be tempered in view of the global environment and its impact on India. Economists have lowered growth estimates for the country in view of President Donald Trump’s trade and tariff policies directed at India. Governor Malhotra mentioned the uncertainty of “external demand”, and the headwinds from “geopolitical tensions” and “volatility in global financial markets.” The RBI may be waiting for the picture to become clear in the coming weeks before it makes a fresh forecast. Malhotra also said that stronger policy frameworks “across domains, and not just limited to monetary policy” are needed for the country to achieve its growth potential. That may be a hint to the government that there are strategies other than monetary policy changes to induce growth.</p>
<p>The unanimous decision of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) to leave the policy rate unchanged at 5.5% was not unexpected, as it had already effected a 100 bps reduction in rates since February 2025. The last meeting in June had seen a hefty cut of 50 points. The MPC’s commentary indicated that there may not be any further reduction in the policy repo rate in this cycle. The MPC also decided to continue with the neutral stance. The global and domestic environment is such that it is better to avoid any decision concerning the economy now. RBI Governor Sanjay Malhotra made it clear when he said that “the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy”. The rates remain above the pre-pandemic levels now, while the real interest level adjusted for inflation is 2-3%. </p>.<p>The central bank has indicated that the inflationary pressure in the economy has subsided. Retail inflation had touched a low of 2.1% in June. The RBI has lowered its inflation forecast for the year to 3.1% from 3.7% earlier. This is because of the fall in food prices and the expectation of a better kharif crop following a good monsoon. But core inflation, which excludes food and fuel, moved up to 4.4% in June. The RBI expects inflation to go up to 4.4% in the fourth quarter of 2025-26 and further to 4.9% in the first quarter of 2026-27. This is because “unfavourable base effects and demand side factors from policy actions come into play”. When inflation is projected to be around 4.5% in 2026, there is not much scope for further rate cuts.</p>.<p class="bodytext">The central bank has retained its projections for growth at 6.5% this year, in line with its expectations in April and June, though it was expected that the forecasts would be tempered in view of the global environment and its impact on India. Economists have lowered growth estimates for the country in view of President Donald Trump’s trade and tariff policies directed at India. Governor Malhotra mentioned the uncertainty of “external demand”, and the headwinds from “geopolitical tensions” and “volatility in global financial markets.” The RBI may be waiting for the picture to become clear in the coming weeks before it makes a fresh forecast. Malhotra also said that stronger policy frameworks “across domains, and not just limited to monetary policy” are needed for the country to achieve its growth potential. That may be a hint to the government that there are strategies other than monetary policy changes to induce growth.</p>
