RBI weighs Trump tariff threats, keeps interest rate unchanged
The central bank has lowered its inflation projection to 3.1% for the current fiscal year.
The central bank has lowered its inflation projection to 3.1% for the current fiscal year.
The central bank has lowered its inflation projection to 3.1% for the current fiscal year.
The Reserve Bank of India (RBI) on Wednesday decided to keep its policy rate unchanged at 5.5 per cent and maintained a neutral stance, following three consecutive rate cuts.
The decision comes amid renewed uncertainty due to tariff threats from US President Donald Trump, who has vowed to impose additional duties on India after previously levying a 25 per cent tariff.
Announcing the third bi-monthly monetary policy of the current fiscal, RBI Governor Sanjay Malhotra said the growth projection for FY26 has been retained at 6.5 per cent. He added that the Monetary Policy Committee (MPC) unanimously decided to keep the short-term lending rate, or repo rate, unchanged at 5.5 per cent, with a neutral stance.
The central bank also lowered its inflation projection to 3.1 per cent from the earlier estimate of 3.7 per cent for the current financial year.
"The MPC's decision to maintain the status quo on rates and stance does not have any element of surprise since it is the right policy decision to ensure price stability in the wake of external headwinds, including the proposed 25 per cent levy on exports by the US. Also, it is pretty evident that the RBI is leaving no stones unturned to ensure price stability, though inflation is cooling and projected to be below the apex bank’s upper threshold limit," said South Indian Bank CFO Vinod Francis.
Since February 2025, the RBI has reduced the policy rate by 100 basis points. In its previous policy review in June, it had trimmed the repo rate by 50 basis points to 5.5 per cent amidst easing inflation in the country.
The central bank has been tasked by the government to ensure that consumer price index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
The retail inflation is trending below 4 per cent since February this year. It eased to a six-year low of 2.1 per cent in June, aided by an easing of food prices and favourable base effect.
Food inflation, which makes up nearly half of the Consumer Price Index (CPI), dropped to -1.06 per cent in June from 0.99 per cent in May. The fall was mainly due to lower prices of vegetables, pulses, meat and fish, cereals, sugar, milk, and spices.