RBI keeps interest rate unchanged at 5.5% amid tariff uncertainties

The Reserve Bank of India’s Monetary Policy Committee on Wednesday decided to keep the policy repo rate unchanged at 5.5 per cent following a detailed 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 policy repo rate under the liquidity adjustment facility lap unchanged at 5.5 per cent,” RBI Governor Sanjay Malhotra said. 

The MPC has cut 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 is still unfolding. He said the uncertainties of tariffs are still evolving. 

“The current macroeconomic conditions, outlook and the uncertainties call for continuation of the policy repo rate of 5.5 per cent and waiting for further transmission of the front-loaded weight cut,” the governor said.

The RBI keeping the policy rate unchanged offers a continued relief to home loan borrowers. There will be no immediate change in existing EMIs and the interest rates for the home loan, personal loan and car loan are likely to stay same. The interest rates on deposits are also expected to stay stable for now. 

The RBI has undershot the CPI inflation projection to 3.1 per cent for the current financial year. In June, the Central bank had projected CPI inflation at 3.7 per cent. 

“CPI Inflation, however, is likely to edge up above 4 per cent in Q4 of this year and beyond as unfavourable base effects and demand side factors from policy actions that we took a few months ago come into play,” the governor said.

Malhotra said the CPI headline inflation declined for the eighth consecutive month to 77-month low of 2.1 percent in June. This was driven primarily by a sharp decline in food inflation, led by improved agricultural activity, and various supply-side measures, he said.

The RBI projected real GDP growth for the current financial year at 6.5 per cent.