RBI Holds Repo Rate Steady at 5.5% Amid Cooling Inflation and Positive Growth Outlook

In a widely anticipated move, the Reserve Bank of India (RBI) decided to maintain the repo rate at 5.5% during its August 2025 Monetary Policy Committee (MPC) meeting. The announcement was made by RBI Governor Sanjay Malhotra after a unanimous vote by all six MPC members.

“After a detailed assessment of the evolving macroeconomic and financial developments and outlook, the MPC voted unanimously to keep the policy repo rate under the Liquidity Adjustment Facility unchanged at 5.5%,” RBI Governor Sanjay Malhotra stated.

📅 Three-Day MPC Deliberation Concludes With No Rate Change

The MPC convened over three days—August 4, 5, and 6, during which it conducted an in-depth analysis of the domestic and global economic conditions. Given the easing of inflation and stable macroeconomic indicators, the RBI found no immediate need to adjust the benchmark lending rate.

This decision follows a 50 basis point reduction in the repo rate in the June 2025 policy, which saw the rate drop from 6% to 5.5%, providing relief to borrowers and stimulating credit growth.

Inflation Continues to Cool Across Retail and Wholesale Segments

Retail Inflation Hits Six-Year Low

India’s inflation trajectory continues to ease. According to provisional figures from the Ministry of Statistics, the Consumer Price Index (CPI)-based inflation for June 2025 stood at 2.10%, down 72 basis points from May 2025.

This marks the lowest retail inflation since January 2019, offering much-needed relief to households and improving consumer confidence.

Food Prices See Significant Decline

Food inflation has turned negative, as per the Consumer Food Price Index (CFPI) for June. The data revealed a year-on-year decline of 1.06%, with a breakdown showing rural areas at -0.92% and urban regions at -1.22%.

This development has been key in moderating overall inflation and supporting the RBI’s decision to keep the policy rate steady.

Wholesale Price Index Dips Below Zero

The Wholesale Price Index (WPI) for June also slipped into the negative zone, registering -0.13% compared to 0.39% in May. The Ministry of Commerce and Industry attributed the decline to falling prices of:

• Food articles

• Mineral oils

• Basic metals

• Crude petroleum

• Natural gas

Favourable Macroeconomic Conditions Support RBI’s Optimism

Despite persistent global headwinds—ranging from geopolitical tensions to volatile commodity prices—the RBI remains positive about India’s growth prospects.

“The monsoon season is progressing well, and the upcoming festival season typically boosts economic activity. Combined with supportive government and RBI policies, this situation bodes well for the Indian economy in the near term,” Governor Malhotra added.

The strong kharif sowing numbers, increasing rural demand, and expanding manufacturing output have collectively improved India’s short-term economic outlook.

Conclusion:

The Reserve Bank of India’s decision to keep the repo rate unchanged at 5.5% in its August 2025 policy meeting reflects its balanced approach to fostering economic growth while keeping inflation under control. With retail inflation dropping to a six-year low and food prices entering negative territory, the central bank has gained room to pause and observe the evolving economic landscape.

The steady rate is expected to maintain the momentum in consumption and investment, particularly as India enters its festive season. Additionally, favorable monsoon patterns, declining wholesale prices, and government support measures offer a solid foundation for short-term economic expansion.

However, global uncertainties—including oil price volatility, geopolitical tensions, and external demand risks—warrant cautious optimism. The RBI's move underlines its confidence in the current economic trajectory while retaining flexibility to respond to future challenges. For now, borrowers and businesses can breathe easy, with the cost of borrowing remaining stable.