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The RBI decided to keep the repo rate steady at 5.5 per cent, citing concerns over tariffs and the impact of GST rationalisation on consumption and growth. Since February 2025, policy rates have been reduced by 100 basis points to support easing inflation. Retail inflation has stayed below 4 per cent, reaching a six-year low of 2.07 per cent in August, aided by falling food prices and favourable base effects. The central bank continues to focus on maintaining CPI-based inflation within the government's target range while monitoring economic developments closely.
The Reserve Bank of India (RBI) maintained its policy interest rate at 5.5 per cent for the second consecutive time, signaling caution over potential economic challenges. RBI Governor Sanjay Malhotra explained that the Monetary Policy Committee (MPC) unanimously decided to keep the short-term lending rate, or repo rate, unchanged, while continuing with a neutral policy stance. Advertisement
Malhotra noted that rationalisation of GST rates is likely to have a moderating effect on consumption and economic growth. In addition, developments related to tariffs could slow the pace of economic expansion in the second half of the fiscal year. These concerns influenced the MPC's decision to maintain rates while closely monitoring inflation trends and growth prospects.
Since February 2025, the RBI has reduced the policy rate by a total of 100 basis points. This included 25 basis points each in February and April, followed by a 50-basis-point reduction in June, in response to easing retail inflation. The repo rate was last cut by 50 basis points in June to reach the current 5.5 per cent level.
The central bank operates under the government's mandate to ensure that Consumer Price Index (CPI)-based retail inflation remains around 4 per cent, with a tolerance range of 2 per cent on either side. Retail inflation has been below 4 per cent since February this year and fell to a six-year low of 2.07 per cent in August, aided by easing food prices and a favourable base effect.
The RBI's measured approach reflects an effort to balance growth with price stability. While the economy benefits from easing inflation, uncertainties related to tariffs and GST changes are expected to moderate demand in the near term. This cautious stance indicates that the central bank is likely to continue monitoring economic data closely, adjusting policy only when necessary to sustain growth and control inflation.
Source PTI
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