Reserve Bank of India (RBI) has kept its benchmark repo rate unchanged at 5.25%, choosing to wait for clearer signs on inflation before making any further changes to monetary policy.

The decision was announced after the central bank's Monetary Policy Committee (MPC) voted unanimously to maintain both the repo rate and its neutral policy stance. The move reflects the RBI's cautious approach as global oil prices and geopolitical tensions continue to create uncertainty for inflation.

RBI Takes Cautious Approach

RBI Governor Sanjay Malhotra said inflation has risen mainly because of higher fuel prices, while broader price pressures remain under control. He emphasized that the central bank remains committed to achieving its medium-term inflation target and will continue monitoring incoming economic data before taking further action.

Unlike several Asian central banks, including those in Indonesia and the Philippines, which have tightened monetary policy in response to rising inflation and currency volatility, the RBI has chosen to maintain current interest rates.

Inflation Forecast Revised Lower

The RBI reduced its average inflation forecast for the current financial year to 5.0%, down from the earlier estimate of 5.1%.

The central bank also lowered its projection for core inflation, which excludes food and fuel prices, from 4.7% to 4.3%.

Although retail inflation recently moved above the RBI's medium-term target of 4%, it is still expected to remain within the central bank's tolerance range of 2% to 6% during the financial year.

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Economic Growth Remains Strong

The RBI slightly improved its GDP growth forecast for the current financial year to 6.7%, up from 6.6% projected earlier.

Governor Malhotra noted that domestic demand continues to remain resilient despite mixed economic indicators. While manufacturing activity has slowed, bank credit growth remains strong, reflecting healthy demand across sectors.

However, he warned that risks remain from an uneven monsoon, global trade uncertainty, and ongoing geopolitical tensions, all of which could affect India's economic outlook.

Market Reaction

Following the policy announcement:

• The 10-year government bond yield remained largely unchanged.
• The Indian rupee weakened slightly against the US dollar.
• The Nifty 50 traded flat.
• The BSE Sensex posted modest gains during morning trading.

Financial markets broadly expected the RBI to keep interest rates unchanged, with most economists predicting no immediate change in monetary policy.