Although the central bank kept rates unchanged, it expects consumer price inflation (CPI) to edge up above the 4% target from the fourth quarter of the current fiscal year.
“Core inflation has been rising steadily from the recent low of 3.6% recorded during December-January 2024-25 and averaged 4.3% in Q1 this year. Core excluding precious metals has witnessed an uptick and averaged 3.4% in Q1,” the monetary policy statement said.
The 10-year benchmark bond yield spiked four basis points just after the policy at 6.37%. The BSE Sensex was down 0.11% at 80,623.74, while NSE’s nifty was down 0.2% 24,605.35. The Indian rupee was up nearly 0.1% versus the U.S. dollar at 87.72 versus its previous close of 87.80/$1.
Governor Sanjay Malhotra reduced the inflation forecast for the second quarter of the current fiscal to 2.1% from 3.4% and the third quarter to 3.1% from 3.9%. The inflation forecast for the first quarter of next fiscal was pegged at 4.9%.
“The inflation outlook for 2025-26 has become more benign than expected in June…. CPI inflation, however, is likely to edge up above 4% by Q4:2025-26 and beyond, as unfavourable base effects, and demand side factors from policy actions come into play,” Malhotra said.The RBI expects inflation to increase further to 4.9% in the first quarter of the next fiscal year. The forecast for consumer inflation in the fiscal was reduced to 3.1% from 3.7%.The external situation also weighed on the RBI decision. “Prospects of external demand remain uncertain amidst ongoing tariff announcements and trade negotiations. The headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook,” Malhotra said.
All the members of the Monetary Policy Committee (MPC) voted to keep policy rates unchanged and keep the stance at neutral.
The neutral stance provides room for the RBI to either increase interest rates or decrease them, depending on the incoming data on inflation and growth. A stance of accommodation rules out any rate hike.
The repo rate — or the rate at which the central bank lends to banks — will remain at 5.5% as all members voted for the status quo. All other rates also remain where they were. A basis point is a hundredth of a percentage point.
The outcome of the MPC’s meeting was in line with an ET poll of 16 respondents, with three-fourths of the participants predicting a status quo on both interest rates and the stance of monetary policy. Four of the 16 polled had expected a 25 basis point cut citing lower inflation.
Headline inflation, as measured by year-on-year changes in the all-India consumer price index (CPI), declined to 2.1% in June 2025 – the lowest since January 2019- from 2.8% in May. The retail inflation remained below the 4% target for the fifth consecutive month in June.
