RBI Holds Policy Rate at 5.50% in August 2025 Meet as Inflation Eases

The Reserve Bank of India (RBI) held its 56th Monetary Policy Committee (MPC) meeting from August 4 to 6, 2025. Unlike the earlier two meetings this year, where rates were cut, this time the RBI chose to pause. The repo rate remains at 5.50%, with the central bank maintaining a neutral stance. This decision comes at a time when inflation has hit multi-year lows and growth is holding steady. The RBI wants to give earlier rate cuts time to show their full impact before making another move.

Let’s break down the main announcements and what they mean for the economy.

Policy Rate Decision and Rationale

The repo rate is the rate at which the RBI lends money to banks. Keeping this rate steady means borrowing costs for banks won’t change. So, lending rates for consumers will also likely stay the same.

Here are the current key rates:

• Repo rate: 5.50%
• SDF (Standing Deposit Facility): 5.25%
• MSF (Marginal Standing Facility) and Bank Rate: 5.75%

The MPC decided unanimously to keep the rates unchanged. After cutting 100 basis points between February and June 2025, the RBI has now chosen to wait and observe how the economy reacts to those earlier cuts.

Inflation Trends and Forecast

Inflation has dropped faster than expected. In June 2025, headline CPI inflation fell to 2.1%, the lowest in over 6 years. This is the eighth straight month of decline.

The main reason behind this drop is food prices:

• Food inflation went into negative territory in June
• A strong monsoon supported agriculture
• Foodgrain stocks and supply-side measures helped keep prices low

However, core inflation (excluding food and fuel) rose to 4.4% in June. This was driven by higher gold prices and services. Looking ahead, inflation may rise slightly in the last quarter of the year. This is due to seasonal demand and base effects.

Revised inflation forecast for 2025-26:

• Q2: 2.1%
• Q3: 3.1%
• Q4: 4.4%
• Full-year average: 3.1%
• Q1 of 2026-27: 4.9%

The RBI has stated that the risks to inflation are evenly balanced, with food prices being the main factor to watch.

Growth Outlook Remains Resilient

India’s economy remains on track. The RBI has kept its GDP growth forecast unchanged at 6.5% for 2025-26.

Domestic demand is being driven by:

• Higher rural spending is supported by a good monsoon
• Continued momentum in construction and services
• Government-led capital expenditure
• Healthy sowing and improved water reservoir levels

However, growth in the industrial sector is still uneven, especially in areas like electricity and mining. External demand also remains weak due to ongoing global trade tensions.

Quarter-wise growth projections remain the same:

• Q1: 6.5%
• Q2: 6.7%
• Q3: 6.6%
• Q4: 6.3%
• Q1 of 2026-27: 6.6%

The RBI believes growth will likely get a further boost during the upcoming festive season.

Global Risks Still in Focus

The global economy continues to face multiple headwinds. While financial markets have calmed slightly, uncertainties remain.

Here’s what the RBI is watching:

• Geopolitical tensions and trade-related risks
• Rising inflation in some advanced economies
• Volatility in global commodity and gold prices
• Uncertain global growth recovery and capital flows

These risks may not impact India immediately. But they could affect exports, markets and sentiment if they worsen.

Key Takeaways from the August 2025 MPC Meet

• Repo rate unchanged at 5.50%: The RBI is waiting to see the full impact of earlier rate cuts
• Inflation at 2.1%: Lowest in 77 months, led by falling food prices and strong supply conditions
• Growth forecast steady at 6.5%: Consumption, capex and rural demand are supporting the economy
• Neutral policy stance continues: RBI remains cautious amid core inflation and global risks

Global uncertainties remain: Trade volatility and weak export demand could affect future quarters