India Holds Key Interest Rates; Upgrades Inflation Forecast

(RTTNews) - The Reserve Bank of India left its key policy rates unchanged on Friday, and upgraded its inflation outlook citing higher oil prices and monsoon uncertainty. The Monetary Policy Committee, governed by Sanjay Malhotra, unanimously decided to hold the policy repo rate at 5.25 percent. The committee also decided to continue with the neutral stance. The RBI had reduced the repo rate by a cumulative 125 basis points in the latest easing cycle that began in February 2025. The standing deposit facility rate was retained at 5.00 percent and the marginal standing facility rate and the Bank Rate were maintained at 5.50 percent.

Despite the global shock, CPI inflation remained below the target, the bank observed. Although the baseline projections point towards headline inflation firming up towards the upper tolerance band in the current fiscal, the impact of the supply shock is expected to wane from March quarter, the MPC said.

Prices of several inputs increased due to the partial pass-through of high global crude oil prices. This could exert upward pressure on inflation in the coming months as firms pass on higher input costs.

Inflation outlook for the current year was revised up to 5.1 percent from 4.6 percent and core inflation projection was raised to 4.7 percent from 4.4 percent.

Inflation forecasts are subject to upside risks due to global supply chain disruptions, global commodity price shocks, uncertainty over south-west monsoon and El Niño conditions, said RBI.

Real GDP growth for 2026-27 was projected at 6.6 percent, which was lowered from the previous forecast of 6.9 percent.

The governor cited prolonged global supply chain disruptions, volatility in global financial markets, and weather-related shocks as downside risks to the domestic growth outlook.