RBI Holds Repo Rate at 5.25%, Cites Inflation and Growth Risks

India's central bank has signalled that caution will guide monetary policy in the coming months, with all six members of the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) unanimously backing a wait-and-watch approach amid growing concerns over inflation, slowing growth and global uncertainties.

Minutes of the MPC's June 3-5 meeting, released on Friday, showed that the committee voted 6-0 to keep the repo rate unchanged at 5.25 per cent while retaining a neutral policy stance . The decision reflects concerns over the impact of the West Asia conflict , volatile crude oil prices, supply chain disruptions, monsoon-related uncertainties and the risk of El Niño conditions affecting food production and inflation.

The repo rate, the interest rate at which the RBI lends funds to commercial banks, is the central bank's key policy tool for balancing inflation and economic growth. While the rate has been reduced from 6.50 per cent over the past year, policymakers indicated that current conditions do not warrant either a rate cut or a rate hike.

RBI Governor Sanjay Malhotra , who chairs the MPC, said inflation and growth projections remain highly uncertain due to geopolitical tensions, fluctuations in commodity prices and the uneven progress of the monsoon. Given these risks, he said the committee preferred to wait for more clarity before taking further policy action.

The RBI has projected inflation at 5.1 per cent for 2026-27 , above its medium-term target of 4 per cent, though still within the mandated tolerance band of 2-6 per cent. At the same time, the central bank has lowered its GDP growth forecast to 6.6 per cent for 2026-27 from the 6.9 per cent estimated earlier, highlighting concerns about a moderation in economic activity.

Deputy Governor Poonam Gupta argued that tightening monetary policy in response to supply-driven inflation could worsen economic pain without effectively controlling prices. She said uncertainty surrounding global developments and weather conditions warranted patience before considering any reversal of the policy cycle.

RBI Executive Director Indranil Bhattacharyya noted that while wholesale price inflation has risen, policymakers need more evidence on whether those increases will pass through to consumer prices. He also pointed to uncertainty over the distribution of monsoon rainfall, a key factor influencing agricultural output and food inflation.

External MPC members Nagesh Kumar , Saugata Bhattacharya and Ram Singh echoed similar concerns, stressing the need for flexibility amid overlapping geopolitical and economic shocks. They warned that the duration of the West Asia conflict and its impact on energy prices could significantly influence India's growth-inflation dynamics.

The minutes suggest the RBI's decision to hold rates steady should not be viewed as a sign that inflation is fully under control. Instead, policymakers believe inflation risks and growth concerns are pulling in opposite directions. Along with maintaining the repo rate at 5.25 per cent, the RBI has also announced measures to attract foreign capital and support the rupee as it navigates an increasingly uncertain global economic environment.