- Decision
- Raise
- Rate change
- 25 bps
- policy repo rate
- 6.5%
The Reserve Bank of India’s Monetary Policy Committee raised the policy repo rate by 25 bp to 6.50 % and lifted the standing deposit facility to 6.25 % and the marginal standing facility/Bank Rate to 6.75 %, citing still-elevated core inflation and the need to anchor expectations while sustaining growth. Liquidity remains in surplus, with average daily absorption of INR 1.6 trn in December–January, and the committee reiterated its stance of “withdrawal of accommodation.” December headline CPI eased to 5.7 % y/y but core inflation climbed to 6.1 %; the RBI projects inflation at 6.5 % in FY 2022-23 and 5.3 % in FY 2023-24 (mid-point 4 % target, ±2 pp band). Real GDP is estimated at 7 % in FY 2022-23 and is forecast to slow to 6.4 % in FY 2023-24, with activity supported by robust credit growth (non-food bank credit +16.7 % y/y), strong domestic demand and public capex, though global slowdown is expected to weigh on exports. Foreign-exchange reserves stood at USD 576.8 bn on 27 Jan. Globally, growth prospects have brightened but remain set to decelerate amid geopolitical tensions and past monetary tightening. The MPC signalled that “further calibrated” tightening may be undertaken and will stay focused on withdrawing accommodation to ensure inflation returns to target while supporting growth.
Rate evolution
From June 2025 to August 2026, the Reserve Bank of India lowered the policy repo rate by 75 basis points from 6.00 per cent to 5.25 per cent, front-loading a 50 basis point cut in June, pausing through October, easing again in December and then holding from February through August. The June move reflected sharply softer CPI inflation, a revised-down inflation outlook seen durably aligned with the 4 per cent target and likely to undershoot it marginally, alongside growth that remained below aspirations in a challenging global environment, after which the Monetary Policy Committee shifted the stance to neutral, citing limited remaining space and the need to assess incoming data. The subsequent pause came even as headline inflation turned more benign on food-price disinflation, Goods and Services Tax rate rationalisation and favourable monsoon conditions, because core inflation stayed around 4 per cent, base effects were expected to lift headline inflation later in 2025-26, and the committee wanted more clarity on the transmission of earlier rate cuts and fiscal measures as tariff, trade and geopolitical uncertainties clouded the external outlook.
The Reserve Bank of India cut the policy repo rate by 25 basis points in December as exceptionally benign food prices and subdued underlying inflation gave room to support growth, but held it at 5.25 per cent in February, judging the level appropriate amid resilient domestic growth and an inflation outlook still near target, while flagging external headwinds and commodity-price, weather and geopolitical risks. In April, the committee left the policy repo rate unchanged and maintained the neutral stance as contained headline inflation and muted core pressures were offset by rising energy, weather, supply-chain and second-round inflation risks from the West Asia conflict, and it held again in June as the conflict continued, domestic demand remained resilient and higher fuel and input costs, a sub-normal south-west monsoon forecast and El Niño risks warranted greater clarity. At its August 3 to 5 meeting, the committee unanimously kept the policy repo rate at 5.25 per cent and retained the neutral stance, noting that headline CPI inflation had moved above target mainly because of food and fuel without becoming broad-based, while core inflation excluding precious metals remained benign and growth stayed resilient, but uncertainty over the south-west monsoon, El Niño, geopolitics and global trade policy required more clarity on inflation’s path and composition before any policy action.