The Reserve Bank of India (RBI) kept its policy repo rate unchanged at 5.25% on August 5, 2026, with the rate-setting panel unanimously voting to hold rates steady while maintaining a neutral policy stance [1, 2, 3, 4]. RBI Governor Sanjay Malhotra said, "While headline inflation has risen above the central bank's target, this is largely on account of higher fuel prices and broader price pressures remain in check" [1].
Retail inflation in India edged slightly above the RBI’s medium-term target of 4%, reaching 4.38% in June 2026 [1, 3, 4]. Core inflation, which excludes volatile energy and food prices, stood at 3.7% at the end of April and is anticipated to rise to 4.7% by the financial year ending March 2027 [3].
The RBI pointed to higher fuel prices and supply-side challenges linked to the ongoing conflict in Iran as key drivers behind the elevated inflation. India imports nearly 85% of its fuel needs, making the economy vulnerable to energy price shocks from supply disruptions related to the Iran war [1, 3, 4]. Other Asian central banks, including Indonesia, the Philippines, Japan, and South Korea, have recently raised rates to counter inflation pressures stemming from the Middle East conflict [1, 3].
On the growth front, the RBI forecasted India's GDP to expand 6.7% in fiscal year 2027, with quarterly growth projections of 6.4% for Q2, 6.5% for Q3, and 6.8% for Q4 [4]. However, signs of moderation are emerging as the private sector purchasing managers index (PMI) fell to a five-year low in July 2026 [1]. Additional risks to growth include uncertain monsoon conditions and the potential impact of El Niño on the agricultural sector [3, 4].
The RBI’s decision to hold the policy rate steady reflects its assessment that broader price pressures remain contained despite external challenges. Policymakers will continue monitoring inflation trends and economic activity closely in the coming months. The next policy review will be keenly watched for any shifts amid global uncertainties and domestic growth signals [1, 4].
