No relief in EMIs for home, personal loan takers; RBI retains key rate unchanged at 5.50%

After two continuous rate cuts, the Reserve Bank of India has decided to retain the key rate (repo) unchanged at 5.50 per cent, a decision that would provide stability with no immediate relief or increase for borrowers of home or personal loans.

The repo rate, the interest rate at which the RBI lends to commercial banks, was reduced earlier from 6.5% to 5.5% across two cuts, and now has been retained as the central bank waits to assess inflation trends and economic recovery.

This is in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, the RBI Governor Sanjay Malohotra said while announcing the Monetary policy.

As for the growth outlook, the above normal southwest monsoon, lower inflation, rising capacity utilization and congenial financial conditions continue to support domestic economic activity, the RBI said while projecting the GDP growth at 6.5 per cent for the current financial year.

The favourable domestic setting, together with supportive policies of the Government and the Reserve Bank, augurs well for the Indian economy in the near term, as geopolitical uncertainties have somewhat abated, even though global trade challenges continue to linger. Over the medium-term also, the Indian economy holds bright prospects in the changing world order drawing on its inherent strength, robust fundamentals, and comfortable buffers. Opportunities are there for the taking, and we are making all efforts to create enabling conditions through a multi-pronged yet cohesive approach to policy making, Malhotra said in his opening statement.

The Central Bank has highlighted some risks emanating from external demand amidst ongoing tariff announcements and trade negotiations.

Globally, policy makers are faced with muted growth and slowing pace of disinflation, with some advanced economies even witnessing an uptick in inflation, the Governor noted. As the dust settles and a new equilibrium emerges in the new global order, policymakers will have a tough task navigating a world characterised by modest growth, sticky inflation and elevated public debt levels.

At the Reserve Bank, leveraging on the room provided by a significant moderation in inflation, “we have taken decisive and forward-looking measures to support growth. The coordinated use of various tools available to us has helped accelerate monetary policy transmission in the current easing cycle.”

Taking all these factors into account, projection for real GDP growth for 2025-26 has been retained at 6.5 per cent, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent, he said.

CPI headline inflation declined for the eighth consecutive month to a 77-month low of 2.1 per cent (year-on-year) in June 2025. This was driven primarily by a sharp decline in food inflation led by improved agricultural activity and various supply side measures. Food inflation recorded its first negative print since February 2019 at (-) 0.2 per cent in June. High-frequency price indicators signal a continuation of the lower price momentum in food prices this year to July as well. Core inflation, which remained within a narrow range of 4.1-4.2 per cent during February-May, increased to 4.4 per cent in June, driven partly by a continued increase in gold prices, the Central Bank said noting the inflation outlook for 2025-26 has become more benign than expected in June.

The inflation outlook for 2025-26 has become more benign than expected in June. Large favourable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of foodgrains have contributed to this moderation. CPI inflation, however, is likely to edge up above 4 per cent in Q4:2025-26 and beyond, as unfavourable base effects, and demand side factors from policy actions come into play.

“Barring any major negative shock to input prices, core inflation is likely to remain moderately above 4 per cent during the year. Weather-related shocks pose risks to inflation outlook. Considering all these factors, CPI inflation for 2025-26 is now projected at 3.1 per cent with Q2 at 2.1 per cent; Q3 at 3.1 percent; and Q4 at 4.4 per cent. CPI inflation for Q1:2026-27 is projected at 4.9 per cent. the risks are evenly balanced,” he added.

The Monetary Policy Committee (MPC) met on the 4th, 5th and 6th of August to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.50 per cent; consequently, the standing deposit facility (SDF) rate shall remain unchanged at 5.25 percent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent. The MPC also decided to continue with the neutral stance.

The MPC unanimously voted to keep the repo rate unchanged. The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path. Accordingly, all members decided to continue with the neutral stance.

He ended his statement saying “as the Indian economy strives to attain its rightful place in the global economy, stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey. We, on our part, will continue to be agile and proactive in providing a facilitative monetary policy based on incoming data and the evolution of the growth-inflation dynamics. As always, we will have clear, consistent and credible communication backed by actions necessary for the task at hand.”