RBI keeps repo rate unchanged amid escalating trade tensions
The Reserve Bank of India’s Monetary Policy Committee on Wednesday decided to keep the repo rate unchanged at 5.5 per cent and retained its “neutral” stance following an assessment of the evolving macroeconomic and financial developments.
“The Monetary Policy Committee (MPC) met on August 4, 5 and 6 to deliberate and decide on the policy repo rate…the MPC voted unanimously to keep the repo rate under the liquidity adjustment facility unchanged at 5.5 per cent,” RBI Governor Sanjay Malhotra said.
The decision was taken primarily due to uncertainty over tariffs as trade negotiations were still underway with the US, and to see the impact of previous cuts on growth and inflation.
The RBI had cut the repo rate by 100 basis points between February and June.
Malhotra said the impact of the 100-basis points rate cut since February on the broader economy was still unfolding.
“The current macroeconomic conditions, outlook and the uncertainties call for continuation of the 5.5% rate. It is prudent to wait for further transmission of the front-loaded weight cut,” the governor said.
The RBI, maintaining the status quo, offers continued relief to home loan borrowers.
There will be no immediate change in existing EMIs and the interest rates for the home loan or car loan would stay the same. The interest rates on deposits are also expected to stay stable for now.
The RBI has revised downwards the CPI inflation projection to 3.1 per cent for the current fiscal after taking into consideration factors such as the steady progress of the monsoon, healthy Kharif sowing, adequate reservoir levels and comfortable buffer stocks of foodgrains.
In June, the CPI inflation was projected at 3.7 percent.
“CPI inflation, however, is likely to edge up above 4% in Q4 and beyond as unfavorable base effects and demand side factors from policy actions that we took a few months ago come into play,” the governor said.
Room for more cuts: Analysts
The move provides more leg-room for another rate cut in the coming months depending on macro-economic data to boost growth amid tariff headwinds, experts said.
Binod Kumar, CEO of Indian Bank, said that as RBI had front loaded rate cut, it was expected to maintain status quo. “It is a welcome move. However, it leaves room to reconsider in coming months as CPI is benign and a push for growth may be required,” Kumar said.
The country is expected to grow 6.5 per cent, as against the International Monetary Fund’s (IMF’s) estimate of about 3 per cent global growth in 2025, Malhotra told reporters at the central bank headquarters here.
“We are contributing about 18 per cent, which is more than the US where the contribution is expected to be much less — about 11 per cent or something. We are doing very well and we will continue to improve further,” Malhotra said, replying to a question on Trump’s recent comments.
Malhotra said the aspirational growth rate for India should be more than 6.5 per cent, which the RBI is projecting for FY25, and added that the country has grown at a yearly average of 7.8 per cent in the past.
Malhotra said the RBI does not expect any impact on inflation because of the tariff-related aspects.
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