The Reserve Bank of India (RBI) has pressed the pause button on interest rate for the fourth straight time while cutting its inflation forecast and raising growth estimates for FY27.

The six-member monetary policy committee (MPC) has kept the benchmark repo rate unchanged at 5.25% amid an inflation estimate of 5% from earlier 5.1% and GDP growth projection at 6.7% from the previous 6.6%.

The RBI has also retained its neutral policy stance even as core inflation, excluding precious metals, continued to remain benign. 

The unanimous decision was taken today in the backdrop of geopolitical uncertainties, volatile crude oil prices and inflationary pressures.

The rate-setting panel also kept the Standing Deposit Facility (SDF) rate unchanged at 5%, while the Marginal Standing Facility (MSF) rate and Bank Rate stayed put at 5.5%.

India’s retail inflation stood at 4.38% in June, up from the RBI’s 4% medium-term target after 17 months. Though the headline inflation will edge higher in the near term, the RBI expects it to peak in the fiscal third-quarter and then ease. 

"The higher inflation (June) is mostly on account of fuel and food with little signs of generalisation of price pressures so far. Core inflation excluding precious metals continues to be benign. Headline inflation is expected to rise further in the near term and peak in Q3:2026-27, primarily due to food and fuel, before moderating thereafter," said RBI Governor Sanjay Malhotra, after the MPC’s three-day meeting. 

"The underlying inflation, reflected by core inflation excluding precious metals, which has been benign for some time, is likely to align with core inflation towards the end of the financial year," he added.

The last time the RBI tinkered with the repo rate was in December 2025 when it reduced it by 25 basis points. 

While the global economy is hit by the US-Iran war, volatile oil prices and supply disruptions, the Indian economy “has remained resilient amidst persisting global headwinds".

While also raising concerns about the uneven monsoon spread under El Nino conditions, the RBI explained its rationale behind the policy to keep interest rates on hold due to high-frequency indicators pointing to "steady domestic demand" in the first quarter. Private consumption remained robust, investment continued to be resilient and healthy services exports were complemented by a rebound in merchandise exports.

"There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action," it said.

Inflation FY27 forecast revised downwards

The RBI has revised downward its CPI inflation forecast for FY27 to 5% from 5.1% earlier.

The quarter-wise estimates are as follows: Q2FY27 at 4.7% from 5.1% earlier; Q3FY27 same at 5.9%; and Q4FY27 at 5.5% from 5.4%. 

For the first quarter of FY28, the RBI has forecast inflation at 5.3%.

GDP growth forecast raised

A better-than-expected first quarter and a resilient domestic economic activity has led the RBI to lift its GDP growth forecast to 6.7% in FY27 from 6.6% earlier.

The quarter-wise estimates are as follows: Q1FY27 at 7% from 6.6% projected earlier in June; Q2FY27 at 6.4% (6.3% earlier); Q3 unchanged at 6.5%; and Q4 unchanged at 6.8%. 

The risks to the growth outlook are evenly balanced, the RBI said.

For the first quarter of FY28, the RBI has projected GDP growth at 7.3%.