RBI retains India’s GDP growth forecast at 6.5% for FY 2025-26; keeps Repo Rate unchanged at 5.5%

Highlights of RBI's August 2025 monetary policy

Following are the highlights of Reserve Bank of India's bi-monthly monetary policy announced by Governor Sanjay Malhotra on Wednesday:

• Short-term lending rate (repo) unchanged at 5.5%;

• MPC unanimously decided to keep policy rate unchanged;

• GDP growth projection for FY26 retained at 6.5%;

• Governor says domestic growth remains resilient, broadly evolving;

• Inflation forecast for FY26 lowered to 3.1%;

• CAD expected remain within a sustainable level;

• Monetary policy transmission still on;

• Impact of 100 bps rate cut since February on the economy still unfolding;

• RBI to standardise claim settlement procedure in bank accounts and lockers of deceased bank customers;

• RBI Retail-Direct platform to enable SIP in treasury bills;

• Next meeting of MPC is scheduled from September 29 to October 1, 2025.
  

The RBI on Wednesday retained its forecast for India’s GDP growth at 6.5 per cent for FY 2025-26, despite global uncertainties, as it expects strong rural demand on the back of a good monsoon and robust government expenditure on big ticket infrastructure projects to propel growth. RBI Governor Sanjay Malhotra said, “The above normal southwest monsoon, lower inflation, rising capacity utilization and congenial financial conditions continue to support domestic economic activity. The supportive monetary, regulatory and fiscal policies including robust government capital expenditure should also boost demand. The services sector is expected to remain buoyant, with sustained growth in construction and trade in the coming months.” “Taking all these factors into account, projection for real GDP growth for 2025-26 has been retained at 6.5 per cent, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent. Real GDP growth for Q1 2026-27 is projected at 6.6 per cent,” the RBI Governor said after the MPC meeting.. However, he pointed out that the 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, he added. Malhotra said that domestic growth remains resilient and is broadly evolving along the lines of the RBI’s assessment. Private consumption, aided by rural demand, and fixed investment, supported by buoyant government capex, continue to boost economic activity.

On the supply side, a steady south-west monsoon is supporting kharif sowing, replenishing reservoir levels and boosting agriculture activity. Moreover, services sector and construction activity remain robust. However, growth in industrial sector remained subdued and uneven across segments, pulled down by electricity and mining, he explained. The global environment continues to be challenging. Although financial market volatility and geopolitical uncertainties have abated somewhat from their peaks in recent months, trade negotiation challenges continue to linger. Global growth, though revised upwards by the IMF, remains muted. The pace of disinflation is slowing down, with some advanced economies even witnessing an uptick in inflation, he added.

In a unanimous decision the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has kept the repo rate unchanged at 5.5 per cent in its August policy meeting. The decision was announced by RBI Governor Sanjay Malhotra on Wednesday. The Monetary Policy Committee (MPC), which met on the 4th, 5th, and 6th of August, carefully reviewed the latest economic and financial conditions before taking this decision. The Governor said that all six members of the MPC voted unanimously to maintain the repo rate under the Liquidity Adjustment Facility at 5.5 per cent. The RBI Governor stated, "After a detailed assessment of the evolving macroeconomic and financial developments and outlook, the MPC voted unanimously to keep the policy record under the Liquidity Adjustment Facility unchanged at 5.5 per cent. This comes after the MPC had reduced the repo rate by 50 basis points to 5.5 per cent in the previous policy meeting held in June. The reason for the earlier rate cut was the easing of inflation. Earlier he stated that both near-term and medium-term inflation levels are now within the RBI's comfort zone. He also highlighted that food inflation has remained soft, which gives the central bank more flexibility in its decisions. Retail inflation in India has continued to fall and has now reached its lowest level in more than six years. According to the Ministry of Statistics, the year-on-year inflation rate based on the Consumer Price Index (CPI) for June was 2.10 per cent (provisional), a drop of 72 basis points compared to May 2025. This is the lowest CPI inflation rate since January 2019. Food prices have also dropped. The Consumer Food Price Index (CFPI) for June showed a year-on-year inflation rate of (-) 1.06 per cent (Provisional). In rural areas, the food inflation rate was (-) 0.92 per cent, while in urban areas, it was (-) 1.22 per cent. Wholesale inflation has also turned negative. The Wholesale Price Index (WPI) for June stood at (-) 0.13 per cent, compared to 0.39 per cent in May. The Ministry of Commerce and Industry said the negative WPI was due to lower prices of food items, mineral oils, basic metals, crude petroleum, and natural gas. Governor Malhotra added that the economic outlook looks positive. "The monsoon season is progressing well, and the upcoming festival season usually increases economic activity. Combined with supportive government and RBI policies, this situation bodes well for the Indian economy in the near term," he said.