RBI holds repo rate, flags supply chain risks to inflation & growth
Why it matters: The RBI's decision directly impacts lending rates for millions of Indians and the 6.9% real GDP growth projection for FY27.
- The Monetary Policy Committee (MPC) unanimously voted to keep the repurchase (repo) rate at 5.25% and maintain a neutral stance, as anticipated by markets.
- RBI Governor Malhotra warned that the West Asia conflict and potential disruptions in the Strait of Hormuz pose downside risks to the projected real GDP growth of 6.9% and headline inflation of 4.6% for FY27.
- Markets reacted positively to ceasefire news, with benchmark bond yields falling 15 basis points to 6.89%, the rupee strengthening 40 paise to 92.58 per dollar, and the Sensex rising 3.95% to close at 77,562.
- The RBI projected core inflation (excluding food and fuel) at 4.4% for the first time, keeping overall inflation estimates within its 2-6% target band despite geopolitical risks.
The Reserve Bank of India (RBI) unanimously held its repo rate at 5.25%, aligning with expectations, but flagged significant risks to inflation and growth from the West Asia conflict and potential energy price spikes. Despite maintaining a neutral stance, the central bank's cautious outlook on geopolitical uncertainties tempered market optimism, even as stocks and the rupee saw immediate gains following news of a ceasefire.
