RBI Keeps Repo Rate Unchanged At 5.25 Pc For Third Time In A Row As Global Tensions Linger
RBI Governor Sanjay Malhotra said the MPC unanimously decided in favour of the status quo on the policy interest rate with a neutral stance.
Published : August 5, 2026 at 10:12 AM IST
Mumbai: The Reserve Bank of India's Monetary Policy Committee (MPC) has decided to keep the policy rate unchanged for the third time in a row at 5.25 per cent, RBI Governor Sanjay Malhotra said on Wednesday, citing global uncertainties amid the West Asia conflict.
The announcement came amid the ongoing West Asia conflict that continues to challenge the global economy by disrupting key trade routes.
Announcing the third bi-monthly monetary policy of the current fiscal, the RBI Governor said the MPC unanimously decided in favour of the status quo on the policy interest rate with a neutral stance.
"After a detailed assessment of the evolving macroeconomic and financial developments and outlook, the MPC voted unanimously to keep the policy repo rate under the lap unchanged at 5.25 per cent," the Governor said.
In June, the Reserve Bank had kept its key policy rate unchanged at 5.25 per cent and adopted a cautious wait-and-watch stance as policymakers assessed the fallout of the West Asia conflict.
The six-member Monetary Policy Committee (MPC) started its three-day deliberations on Monday (August 3). "Economic growth continues to be supported by resilient demand," the governor highlighted.
The decision leaves India diverging from a growing number of regional central banks, including Indonesia and the Philippines, that have tightened monetary policy in response to higher energy prices and war-driven currency volatility. Instead, the RBI has relied on measures announced at its previous policy meeting to attract capital inflows and support the rupee.
The Standing Deposit Facility (SDF) rate also remained at 5 per cent, while the Marginal Standing Facility (MSF) rate and the bank rate stood at 5.5 per cent. RBI Governor Malhotra said that trade uncertainties linger as the US has imposed fresh tariffs.
Crude oil and financial markets remain volatile amid the West Asia crisis, he added. The Governor noted that the Indian economy has performed better than expected in the April-June quarter of this fiscal.
The central bank lowered the Consumer Price Index (CPI) inflation projection to 5.0 per cent for FY27, from the earlier estimate of 5.1 per cent, said the Governor. The Governor emphasised that headline inflation is expected to rise in the near term, fuelled by higher oil and food prices, to peak in Q3 before starting to decline.
He said the outlook remains hazy amid uncertainties around the Southwest monsoon, El Niño, geopolitics and global trade policy. He added that greater clarity is needed on the inflation trajectory and its composition before taking any policy action.
Marginally raising its economic growth forecast for the current financial year to 6.7 per cent from 6.6 per cent projected in June, the central bank said domestic growth remained resilient, supported by robust domestic demand, manufacturing and services activity and strong exports, despite heightened global uncertainty stemming from the West Asia conflict and trade tensions.
Malhotra further stated that underlying inflation, as reflected by core inflation excluding precious metals, has remained benign for some time and is expected to align with core inflation towards the end of the financial year.
However, it warned that the outlook remains uncertain due to risks from the southwest monsoon, El Niño conditions, geopolitical developments and global trade policy.
While high-frequency indicators present a mixed picture, with manufacturing activity slowing and bank credit growth remaining close to 18 per cent, the RBI said domestic demand continued to be resilient.
However, Malhotra warned that a weak monsoon, trade uncertainty and geopolitical tensions remained key risks to the growth outlook.
"Global economic conditions and sentiments continue to remain hostage to the rapidly oscillating developments, both in scale and intensity, of the West Asia conflict. While these have impacted the domestic growth-inflation outlook adversely, the stronger macroeconomic fundamentals of the Indian economy are helping navigate this global shock resolutely," he said.
This, he said, presents an opportunity to accelerate measures to enhance our resilience to withstand such shocks. "We shall continue to implement policies that further fortify our economy. Whether it is facilitating sustainable growth or promoting consumer protection; whether it is preserving stability of prices, the financial system or the currency, we will do whatever it takes to ensure the same."
The rupee has been hovering between 95 and 96 against the dollar. Once considered among Asia's more stable currencies, the rupee has now become one of the worst-performing emerging market currencies this year, pressured by a mix of expensive oil, capital outflows, widening trade deficits and a surging US dollar. It has depreciated about 7 per cent so far in 2026 and is down roughly 6 per cent since the outbreak of the Iran conflict in late February.
The central bank said system liquidity remained in surplus and it would continue to conduct two-way liquidity operations to ensure adequate liquidity in the banking system and align the weighted average call rate with the policy repo rate.
On the external sector, Malhotra said India's current account remained resilient despite global turbulence, supported by strong services exports and remittance inflows. Foreign direct investment inflows remained robust while foreign portfolio flows turned positive in June and July following measures to attract capital into Indian debt markets. Foreign exchange reserves stood at USD 692.9 billion as of July 31.
The RBI also announced additional measures for the cooperative banking sector, including draft guidelines to resume licensing of urban cooperative banks and revised draft directions for the Credit Monitoring Arrangement for rural cooperative banks.
To improve transparency and consumer protection, the central bank proposed harmonising and standardising the regulatory framework governing interest rates on advances across all regulated entities.
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