The Reserve Bank of India said on Wednesday, August 5, that it has retained the repo rate at 5.25% for the fourth meeting in a row, while keeping its monetary policy stance 'neutral'. The MPC's third-ever bi-monthly policy meeting for FY27 took place on 3 to 5 August and the decision to keep rates unchanged was unanimous.

Key Highlights

• The RBI has kept the repo rate unchanged at 5.25% for the fourth straight meeting and has remained neutral.
• The RBI has raised GDP growth and core inflation estimates for FY27 to 6.7% and 4.3%, respectively.

In addition to the repo rate, the RBI also maintained the Standing Deposit Facility (SDF) rate at 5%, and the Marginal Standing Facility (MSF) rate and the bank rate at 5.5% respectively. The call was eagerly awaited and so was the verdict – most economists and market makers were expecting a “no change” as the world faced greater uncertainty.

Growth Projected at 6.7%, Inflation Outlook Discussed

The MPC also revised up its real GDP growth estimate for FY27 to 6.7% from 6.6%, with core inflation estimated at 4.3% for the year. The Indian economy did better than anticipated in the first quarter, despite the headwinds in the global economy, thanks to positive initial corporate results in manufacturing and strong discretionary consumer spending, Governor Malhotra added.

On inflation, Malhotra said headline CPI inflation had edged up above target, largely on account of food and fuel prices, while core inflation remained benign. He added that headline inflation is expected to peak in the third quarter of the financial year before moderating thereafter. Realised inflation in the first quarter came in marginally lower than earlier projections, reflecting limited pass-through of cost pressures to consumers.

Global Uncertainty and Crude Oil Volatility in Focus

The Governor acknowledged that the re-escalation of the US-Iran conflict since early July had amplified volatility in global energy prices, adding a layer of complexity to the inflation outlook. He said growth, while resilient, is expected to be somewhat lower this financial year, with the overall outlook remaining hazy due to ongoing uncertainty around global trade policy. Sanjay Malhotra emphasised the need for greater clarity on the inflation trajectory and its composition before the central bank considers any further policy action.

Also Read: RBI Keeps Repo Rate at 5.25%, Predicts India GDP Growth at 6.9%

Markets React Positively Ahead of Policy Announcement

Indian equity markets opened higher on Wednesday ahead of the policy announcement, with the Nifty up 0.22% at 24,669.2 and the BSE Sensex gaining 0.8% to 79,055.38 by 9:15 am. Twelve of the 16 major sectors logged gains at the open, while broader mid-cap and small-cap indices advanced 0.6% and 0.5%, respectively.

The Indian rupee also strengthened ahead of the policy decision, appreciating 46 paise to open above the 95-per-dollar mark, supported by a sharp correction in Brent crude prices from a recent high of around $102 a barrel to $78.80, alongside sustained  Reserve Bank of India intervention and strong capital inflows.

Analysts Expected Continuity Over Change

Commenting ahead of the policy outcome, VK Vijayakumar, Chief Investment Strategist at Geojit Investments said, "The sharp dip in Brent crude below $80 and record closes on US markets augured well for Indian markets, adding that growth resilience, improving corporate earnings and sustained FII buying were positive signals for equities."

Prachi Kele, Lead Economist at PL Capital said, "The MPC was expected to adopt a cautious tone amid ongoing war-related uncertainties while reiterating a data-dependent approach, citing favourable responses to FCNR(B) measures and improving food inflation prospects as supportive of a policy pause."

Seema Srivastava, Senior Research Analyst at SMC Global Securities noted, "Markets would focus more on the RBI Governor's commentary than the decision itself, with investors closely tracking the central bank's assessment of inflation risks, liquidity conditions and future policy direction."

Liquidity Management to Remain a Key Focus

According to brokerage Emkay, liquidity management is expected to remain a priority area for the RBI going forward, with the central bank likely to manage surplus liquidity through temporary absorption measures rather than tightening policy. Core liquidity was estimated at around Rs 5.4 trillion, with average banking system liquidity at approximately Rs 1.1 trillion in July, expected to peak in the second quarter of FY27 before moderating in the latter half of the year.