The Reserve Bank of India’s Monetary Policy Committee kept the policy repo rate unchanged at 5.25 per cent at its third bi-monthly meeting of 2026-27. The meeting was held on August 3, 4 and 5, and the decision was unanimous.
With the repo rate unchanged, the standing deposit facility rate remains at 5.00 per cent. The marginal standing facility rate and the Bank Rate remain at 5.50 per cent. The MPC also decided to continue with a neutral policy stance, giving it room to respond to changes in growth and inflation conditions.
Why the MPC held rates
The RBI said the global environment has become more unstable because of the West Asia conflict, disruption to trade routes and supply chains, fresh US tariffs, and volatility in crude oil, currencies and financial markets. It said global growth is expected to soften while inflation forecasts for 2026 are higher than the previous year.
On the domestic side, the MPC noted that headline CPI inflation had moved above the target as expected, mainly because of food and fuel. The RBI said price pressures have not become broad-based so far. Core inflation excluding precious metals has stayed benign, while broader core inflation has remained moderate.
The central bank said inflation is expected to rise further in the near term and peak in the third quarter of 2026-27 before moderating later. It said more clarity is needed on the inflation path and its composition before any policy action is taken.
Growth forecast for 2026-27
The RBI projected real GDP growth for 2026-27 at 6.7 per cent. It placed the quarterly growth estimates at 7.0 per cent for Q1, 6.4 per cent for Q2, 6.5 per cent for Q3 and 6.8 per cent for Q4. The risks were described as evenly balanced.
The RBI said domestic activity performed better than expected in the first quarter, supported by manufacturing, services, private consumption, government spending on infrastructure and exports. It noted that early corporate results showed healthy manufacturing performance, while the manufacturing PMI stayed in the expansion zone.
Services activity also maintained momentum, helped by domestic demand. The RBI cited growth in indicators such as GST e-way bills, toll collections, GST revenue, domestic air cargo, vehicle sales and port cargo during Q1:2026-27.
Looking ahead, the central bank said agriculture prospects are clouded by deficient and uneven southwest monsoon conditions amid El Niño. Reservoir levels close to normal were seen as a positive factor. It also pointed to government measures related to crop diversification, climate-resilient crops, water harvesting and conservation as steps that could reduce the impact of weak rainfall.
Inflation outlook
CPI inflation rose to 4.4 per cent in June 2026 after staying below the target for 16 consecutive months. The RBI said the June increase was mainly due to food, fuel and fuel-linked inflation in categories such as restaurant services.
Core inflation, which excludes food and fuel, remained at 3.9 per cent during May and June. Core inflation excluding precious metals was lower, in the 2.3 to 2.5 per cent range during the same period.
For 2026-27, the RBI projected CPI inflation at 5.0 per cent. It expects inflation at 4.7 per cent in Q2, 5.9 per cent in Q3 and 5.5 per cent in Q4. Inflation for Q1:2027-28 is projected at 5.3 per cent. Core inflation is projected at 4.3 per cent for 2026-27.
The RBI said El Niño’s effect on rainfall remains a major risk, though foodgrain stocks and supply management provide some comfort. It also flagged volatile global oil prices, which have moved sharply with geopolitical developments.
Liquidity, banks and external sector
System liquidity, measured by the net position under the liquidity adjustment facility, averaged a daily surplus of ₹1.0 lakh crore since the June MPC meeting. The weighted average call rate averaged 5.31 per cent and traded within the policy corridor.
The RBI said it would use two-way operations to ensure sufficient liquidity in the banking system, with the aim of aligning the weighted average call rate with the policy repo rate.
On financial stability, the RBI said scheduled commercial banks remain healthy on capital, liquidity, asset quality and profitability parameters, though net interest margin has moderated compared with last year. It also said NBFCs have adequate capital, improved gross non-performing asset ratios and higher profitability.
India’s current account deficit in 2025-26 stood at 0.6 per cent of GDP. During April-May 2026, the current account recorded a surplus of US$ 2.8 billion, helped by services trade and remittances. In Q1:2026-27, the merchandise trade deficit widened to US$ 86.6 billion from US$ 68.7 billion a year earlier, mainly due to crude oil, electronic goods and gold imports.
Gross FDI inflows were US$ 30.7 billion during April-June 2026, compared with US$ 26.7 billion a year earlier. Foreign portfolio investment saw net inflows of US$ 7.1 billion during June-July 2026, mainly through the debt segment. India’s foreign exchange reserves stood at US$ 692.9 billion as of July 31, 2026.
Other measures announced
The RBI also proposed draft guidelines for resuming licensing of urban cooperative banks and draft directions after a review of the credit monitoring arrangement for rural cooperative banks. It further proposed to harmonise and standardise the regulatory framework on interest rates on advances for all regulated entities.
Source: Reserve Bank of India Press Releases.