RBI Holds Key Rate Steady Amid Inflation and Growth Projections

The Reserve Bank of India (RBI) has decided to maintain the terminal rate at 5.5% in the near-term, according to Bank of Baroda Economist Jahnavi Prabhakar. This decision aligns with the central bank's guidance that future actions will depend on data and external factors, particularly uncertainties stemming from trade negotiations.

Despite previous expectations of potential rate cuts, a reduction in the interest rate is unlikely before the third quarter of 2025-26. With inflation forecasts for Q4 2025-26 and Q1 2026-27 surpassing the 4% mark, prospects for a rate reduction have greatly diminished. The monetary policy meeting concluded with an unchanged repo rate, aligning with public expectations, and reaffirmed at 5.5% by unanimous decision.

Marking a first since the easing cycle began in February 2025, the RBI continues its neutral monetary policy stance. Previously frontloaded rate cuts are still having an unfolding impact. Growth projections for 2025-26 stand firm at 6.5%, with quarterly growth estimates detailed. The RBI remains optimistic about monsoon progress aiding Kharif sowing and has lowered inflation projections for 2025-26 to 3.1% from a prior 3.7%.

(With inputs from agencies.)