RBI Monetary Policy
The Reserve Bank of India (RBI) maintained the repo rate at 5.5% during its August 2025 policy meeting, aiming to stabilize the economy as global tariff tensions rise. Although it had reduced the rate by 100 basis points since February, the RBI adopted a neutral stance to assess inflation and trade dynamics while supporting liquidity.
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RBI Maintains Status Quo on Repo Rate
On August 6, 2025, the Reserve Bank of India (RBI) announced its decision to keep the repo rate unchanged at 5.5%, as confirmed by Governor Sanjay Malhotra. This pause follows a cumulative 100 basis point rate cut implemented in stages since February 2025. The Monetary Policy Committee (MPC) acted unanimously, choosing to wait and observe the impact of past measures rather than introduce new ones immediately.
Focus on External Risks and Domestic Stability
The committee’s decision comes amid growing global trade concerns, especially after the United States imposed a 25% tariff on Indian exports, effective August 7. In light of these developments, the RBI emphasized the importance of maintaining monetary policy flexibility and allowing past rate adjustments to influence the economy more fully.
Inflation and Growth Outlook Remain Balanced
India’s retail inflation dropped to 2.1% in June 2025, reaching a six-year low and staying well within the RBI’s comfort range of 2–6%. As a result, the central bank revised its inflation forecast for FY26 to 3.1%, signaling stable price conditions. Meanwhile, the GDP growth projection held steady at 6.5%, driven by strong domestic consumption and infrastructure investments.
Liquidity Support to Strengthen Credit Growth
The RBI reported a daily liquidity surplus averaging ₹3 lakh crore since the last policy meeting. To further stimulate credit, it confirmed that the phased Cash Reserve Ratio (CRR) cuts—25 basis points each between September and November—would inject ₹2.5 lakh crore into the banking system. These moves aim to boost lending to productive sectors such as MSMEs and infrastructure.
Market and Borrower Impacts
Around 75% of economists polled had predicted no change in the repo rate, and markets responded positively. The Nifty 50 rose by 0.68%, and the Sensex gained 0.70%, reflecting investor optimism about stable liquidity. For borrowers, interest rates on loans remain unchanged for now. However, the RBI noted that previous rate cuts are still working their way through the system and should reduce borrowing costs in the coming months.
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Outlook for the Next Policy Meeting
With the next MPC meeting scheduled for September 29 to October 1, 2025, the RBI will continue to monitor inflation trends, global policy shifts, and the full transmission of earlier cuts before making further changes. The neutral stance allows the central bank to act quickly if the situation demands.
