RBI keeps repo rate unchanged at 5.25%

The Reserve Bank of India’s Monetary Policy Committee on Friday kept the repo rate unchanged at 5.25%.

The repo rate is the interest rate at which the central bank lends money to commercial banks. The Monetary Policy Committee reviews the rate every two months.

The committee had cut the repo rate by 25 basis points from 5.50% in December and kept it unchanged in February and April.

A basis point is one-hundredth of a percentage point. Basis points are used to describe the percentage change in the value of a financial instrument.

Central banks usually reduce repo rates to stimulate economic growth by making borrowing cheaper for individuals and businesses. This translates to lower equated monthly instalments for borrowers.

On Friday, Reserve Bank Governor Sanjay Malhotra said that the Monetary Policy Committee had decided to maintain its monetary policy stance as “neutral”.

A neutral stance means that the Reserve Bank remained flexible in adjusting policy rates based on prevailing economic conditions.

Inflation and growth

The consumer price index inflation increased to 3.4% in March and 3.5% in April 2026 mainly because of higher food inflation, the Reserve Bank said. The central bank is tasked with keeping inflation at 4%, with a tolerance band between 2% and 6%.

Fuel inflation “remained modest” as retail prices had remained largely unchanged in March and April, it added.

The central bank projected the real gross domestic growth for the financial year 2026-’27 to be 6.6%. This is 0.3% lower than the 6.9% projection made in April.

It said that prolonged disruptions of global supply chains, heightened volatility in financial markets and problems created by the weather pose risks to domestic growth.

Economic outlook

The central bank said that the risks to inflation and growth have increased as no meaningful resolution to war in West Asia is in sight. It noted that the global energy markets have been volatile, crude oil reserves are declining and commodity prices have remained elevated.

“Faced with difficult trade-offs, monetary policy has turned more cautious,” the Reserve Bank said.

Elevated prices of energy and other commodities coupled with continued supply disruptions are likely to hurt economic activity, the central bank said. The full impact will depend on the duration of the war, time taken for supply chains to normalise and the “burden-sharing approach among the stakeholders”, it added.

On the domestic front, economic activity has remained “largely steady” since the war began on February 28, the central bank said, adding that private consumption has been resilient.

The export of goods recorded strong growth in April, the bank said, but added that increased shipping and insurance costs remained a drag. Services exports continued to be robust, it added.

“While the economy has withstood the conflict spillovers with limited impact so far; the strains are increasingly becoming visible,” the Reserve Bank said.

The Reserve Bank noted that the southwest monsoon is expected to be deficient and said that it would hurt agricultural activity and rural demand.

Written by Nachiket Deuskar. Edited by Tanya Shrivastava.