RBI Maintains Repo Rate at 5.5% Amid Neutral Monetary Policy Stance

Market Performance

Rate-sensitive sectors experienced subdued trading following the Reserve Bank of India's monetary policy announcement on Wednesday, August 6. The RBI kept repo rate unchanged at 5.5 percent while maintaining its neutral policy stance.

Key market movements included:

• Bank Nifty declined marginally post-announcement
• Nifty Auto index dropped by 0.4-0.8 percent
• Realty sector indices fell in similar range
• Banking and NBFC stocks traded with muted sentiment

Main News

The RBI's Monetary Policy Committee delivered an anticipated decision to keep the repo rate unchanged at 5.5 percent. This marks a continuation of the central bank's neutral stance adopted in recent policy meetings.

RBI Governor Sanjay Malhotra highlighted that domestic growth remains resilient and is progressing as expected. However, he noted that high-frequency economic indicators showed mixed signals during May and June 2025.

The Governor emphasized India's strong economic fundamentals and comfortable policy buffers, positioning the economy well for medium-term growth prospects in the evolving global landscape.

Inflation Projections Revised Downward

The RBI significantly revised its inflation forecasts for FY2026, indicating easing price pressures across most quarters:

CPI Inflation Projections for FY2026:

• Full year estimate: 3.1% (revised down from 3.7%)
• Q2FY26: 2.1% (sharp cut from 3.4%)
• Q3FY26: 3.1% (revised from 3.9%)
• Q4FY26: 4.4% (unchanged)
• Q1FY27: 4.9%

The central bank expects retail inflation to see an uptick in the final quarter of FY2026. Core inflation is projected to remain steady around the 4 percent mark throughout the period.

GDP Growth Forecast Maintained

The RBI retained its real GDP growth projection for the current financial year at 6.5 percent. The quarterly growth estimates remain unchanged:

GDP Growth Projections:

• Q1: 6.5%
• Q2: 6.7%
• Q3: 6.6%
• Q4: 6.3%

Policy Context and Recent Actions

The RBI had cut the benchmark lending rate by 50 basis points in its previous monetary policy meeting, while also changing its policy stance to 'neutral' from the earlier 'accommodative' approach.

Over the past three monetary policy meetings, the central bank has cumulatively cut the repo rate by 100 basis points. The current neutral stance reflects the RBI's balanced approach to supporting growth while managing inflation expectations.

Summary

The central bank's decision to hold the repo rate steady at 5.5 percent demonstrates a measured policy approach after implementing previous rate reductions. The central bank's revised inflation projections show a more optimistic outlook on price stability, with significant downward revisions for most quarters of FY2026.

The neutral monetary policy stance continues to reflect the RBI's cautious approach as it balances growth support with inflation management. Rate-sensitive sectors showed muted response to the announcement, with banking, auto, and realty stocks experiencing marginal declines.

The RBI's confidence in India's economic fundamentals and growth trajectory remains intact, despite mixed signals from recent high-frequency indicators.