RBI keeps repo rate unchanged at 5.25%, says India better placed to weather global turbulence

Choosing caution over a policy shift, the Reserve Bank of India on Friday left the repo rate unchanged at 5.25 per cent. The decision was unanimous, with the Monetary Policy Committee citing an uncertain global environment, geopolitical risks and inflationary pressures.

The decision comes at a time when policymakers are navigating a complex external environment marked by disruptions to trade routes, volatile financial markets and rising energy prices. While India has remained relatively resilient compared to several major economies, the central bank signalled that external risks continue to warrant caution.

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Announcing the outcome of the MPC meeting, RBI Governor Sanjay Malhotra said all members voted in favour of maintaining the policy repo rate under the Liquidity Adjustment Facility (LAF) at 5.25 per cent.

As a result, the Standing Deposit Facility (SDF) rate remains at 5 per cent, while the Marginal Standing Facility (MSF) rate and the Bank Rate continue at 5.5 per cent.

Global uncertainties remain a key concern

Explaining the committee’s thinking, Malhotra said the global economy continues to face multiple headwinds, including supply chain disruptions, uncertainty around trade flows and heightened market volatility.

“The global economy has been shaped by heightened uncertainty, disruptions to key trade routes and supply chains, increased market volatility, and cautious business sentiment,” the Governor said while announcing the policy decision.

He noted that India entered the current phase of global turbulence from a position of relative strength compared to previous periods of global stress.

According to Malhotra, the present environment should also be viewed as an opportunity to strengthen the country’s economic resilience while addressing emerging challenges.

“It is important to not only confront and address these challenges, but also, at the same time, take this as an opportunity to further enhance our resilience,” he said.

West Asia tensions and energy prices in focus

The RBI Governor also pointed to the continuing geopolitical impasse in West Asia as a major source of uncertainty for the global economy. Rising energy prices and supply chain disruptions linked to regional tensions remain among the key risks being watched by policymakers.

He said central banks across major economies have become increasingly cautious as they balance the need to support growth while keeping inflation under control.

Malhotra observed that some advanced economy central banks could increasingly lean towards monetary tightening as inflation concerns persist.

Markets showing mixed signals

While global equity markets have remained buoyant, aided by optimism around artificial intelligence-driven growth, bond markets continue to face pressure from inflation concerns and worries over debt sustainability, the Governor noted.

The latest decision follows the MPC’s previous policy review in April, when the committee had also unanimously opted to retain the repo rate at 5.25 per cent while maintaining a neutral policy stance.