RBI Holds Repo Rate at 5.5% Amid Cooling Inflation; Growth Outlook Steady

At its meeting on August 6, 2025, the Reserve Bank of India decided to keep the repo rate steady at 5.50% for the third time in a row. India’s economy remains strong, despite ongoing global challenges.

Inflation: Eases to Multi-Year Low

One of the main points from the meeting is that inflation has dropped sharply.

• June CPI inflation fell to 2.1%, the lowest in 77 months, marking the eighth straight month of decline.
  
  

• The full-year inflation forecast for FY25–26 has been retained at 3.1%, a sharp drop from earlier expectations.
  
  

• The central bank attributes this to:
  Improved agricultural output
  Effective supply-side measures
  A decline in food inflation

Still, the RBI warned that inflation might rise to 4.9% in the first quarter of FY27, so the recent drop may not last. Because of this, the bank is holding off on more rate cuts after already lowering rates by 100 basis points earlier in FY26.

Growth Outlook: RBI Retains Confidence

India's growth trajectory remains stable and positive:

• The RBI has maintained its GDP growth projection for FY26 at 6.5%, underscoring continued economic momentum.
• The quarter-wise GDP forecasts reflect a healthy expansion:
  • Q1FY26: 6.5%
  • Q2FY26: 6.7%
  • Q3FY26: 6.6%
  • Q4FY26: 6.3%
  • Q1FY27: 6.6%

This shows the central bank remains optimistic about domestic demand, a rebound in manufacturing, and a strong services sector.

Liquidity & Policy Corridor: Stable and Accommodative

Banking system liquidity is still healthy, helped by the earlier 100 basis point cut to the CRR, which boosted lending. The RBI did not announce any new liquidity steps, and the CRR stays the same.

The policy corridor remains steady:

This shows the RBI wants to keep liquidity steady without upsetting the markets.

Market Implications

• Bond markets are expected to remain range-bound as rate cuts are off the table for now.
• Stock markets may welcome lower inflation, but will keep an eye on future inflation numbers for hints about policy changes.
• Banks and NBFCs are likely to benefit from stable rates and a supportive liquidity environment.
• The RBI’s careful approach means future decisions will depend on the latest data, especially inflation figures.

Final Thoughts

The August 2025 MPC decision shows the RBI is being careful but confident. Even though inflation has dropped a lot, the bank is not in a hurry to cut rates again. It wants to keep the economy stable and be ready if inflation rises again.

For now, with steady growth and low inflation, the RBI’s policy helps keep the financial system stable, interest rates predictable, and the outlook for India’s recovery positive.