The Reserve Bank of India kept the repo rate unchanged at 5.25% on Friday during its latest Monetary Policy Committee meeting [1].
This decision comes as the central bank grapples with volatile energy prices and geopolitical instability. The hold suggests a cautious approach to balancing inflation control with economic growth as external shocks threaten the domestic recovery.
Governor Sanjay Malhotra said the Monetary Policy Committee has maintained a neutral stance [1]. Despite the steady interest rate, the bank lowered its real GDP growth projection for FY27 to 6.6%, down from a previous estimate of 6.9% [2, 3]. Other reports have cited a more aggressive downgrade for the 2026-27 period to 6.0% [4].
Malhotra said these downward revisions were due to supply-chain disruptions and higher energy prices stemming from the war in West Asia [2, 4]. These factors are viewed as significant downside risks that could dampen the overall growth trajectory.
Regarding price stability, the bank increased its FY27 inflation forecast by 50 basis points to 5.1% [5]. However, the core inflation projection remains steady at 4.7% [1]. Malhotra said that CPI inflation currently remains below the target because the pass-through to domestic prices has been limited, though projections suggest headline inflation will firm up toward the upper tolerance level [6].
To stabilize the national currency, the RBI is introducing a series of financial measures. Malhotra said the bank is unveiling tax breaks for foreign investors, concessional forex swaps, and NRI deposit incentives to support the rupee [4]. These steps are intended to buffer the economy against the oil shock and the ongoing conflict in West Asia [4].
The measures aim to attract foreign capital and maintain liquidity in the forex market while the economy faces headwinds from global volatility [4].
“The Reserve Bank of India kept the repo rate unchanged at 5.25%”
The RBI is signaling a pivot toward defensive stability. By holding rates steady while lowering growth forecasts, the bank is acknowledging that external geopolitical shocks—specifically the West Asia war—are now primary drivers of India's economic risk. The introduction of specific incentives for foreign investors and NRI deposits indicates that the central bank is prioritizing the stability of the rupee to prevent imported inflation from further eroding GDP growth.
