The Reserve Bank of India has decided to keep the repo rate unchanged at 5.25% for the third consecutive time, influenced by global economic factors like unstable energy prices and supply chain disruptions stemming from the West Asia war. Although headline retail inflation has risen to 4.38%, the central bank, led by Governor Sanjay Malhotra, assesses core inflation as stable at 3.5%, attributing the headline increase to specific price hikes in food and oil caused by geopolitical tensions. Despite these factors, the RBI has revised its GDP growth forecast upwards to 6.7% and lowered its inflation projection to 5% for the current fiscal year, indicating a generally stable outlook for consumer loan rates and fixed deposits.

The Reserve Bank of India has decided to keep the repo rate unchanged at 5.25% for the third consecutive time, influenced by global economic factors like unstable energy prices and supply chain disruptions stemming from the West Asia war. Although headline retail inflation has risen to 4.38%, the central bank, led by Governor Sanjay Malhotra, assesses core inflation as stable at 3.5%, attributing the headline increase to specific price hikes in food and oil caused by geopolitical tensions. Despite these factors, the RBI has revised its GDP growth forecast upwards to 6.7% and lowered its inflation projection to 5% for the current fiscal year, indicating a generally stable outlook for consumer loan rates and fixed deposits.

The Reserve Bank of India has decided to keep the repo rate unchanged at 5.25% for the third consecutive time, influenced by global economic factors like unstable energy prices and supply chain disruptions stemming from the West Asia war. Although headline retail inflation has risen to 4.38%, the central bank, led by Governor Sanjay Malhotra, assesses core inflation as stable at 3.5%, attributing the headline increase to specific price hikes in food and oil caused by geopolitical tensions. Despite these factors, the RBI has revised its GDP growth forecast upwards to 6.7% and lowered its inflation projection to 5% for the current fiscal year, indicating a generally stable outlook for consumer loan rates and fixed deposits.

As predicted by industry estimates, the Reserve Bank of India has decided to maintain the repo rate at 5.25 per cent for the third time consecutively. The decision is based on volatile energy prices and supply disruptions caused by the ongoing war in West Asia.

The repo rate is the short-term interest rate at which the central bank lends money to commercial banks. It is used as a tool to control the country's inflation rate. Higher interest rates mean that banks must pay more to borrow from the central bank, making loans expensive for the general public. This indirectly reduces spending and cools down inflation.

Consumer Price Index (CPI) based headline retail inflation rose to 4.38 per cent, up from 3.9 per cent in May. While this is within the RBI’s inflation bandwidth of 2 to 6 per cent, it crossed the RBI’s medium-term target of 4 per cent.

However, RBI governor Sanjay Malhotra said the decision to keep the repo rate unchanged was based on the assessment that core inflation rates remain stable at 3.5 per cent and that a rise in headline inflation does not indicate a broader rise in prices. He mentioned that the CPI-based inflation was high, primarily because of select items in the basket, including high food and oil prices, which were caused by disruptions from the ongoing US-Iran war.

Additionally, the rupee has been depreciating, hovering between 95 and 96 against the dollar. Pressured by a mix of expensive crude, capital outflows, wide trade deficits and a surging US dollar, the rupee has become one of the worst-performing emerging market currencies this year.

The RBI has raised the GDP growth forecast to 6.7 per cent while lowering the inflation projection to 5 per cent for the current fiscal.

As the repo rate remains unchanged, EMIs and fixed deposits are expected to remain stable.

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