RBI holds repo rate at 5.5%, maintains neutral stance; economists call it a 'dovish pause'

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The Reserve Bank of India (RBI) on Wednesday left the benchmark repo rate unchanged at 5.5 per cent, as its MPC (Monetary Policy Committee) opted for a cautious approach balancing moderating inflation with steady economic growth. The decision, backed unanimously by all 6 MPC members, was in line with market expectations.

Governor Sanjay Malhotra reaffirmed the central bank’s ‘neutral’ policy stance, indicating flexibility in future actions. “Domestic activity remains encouraging, though global trade uncertainties and capital flow volatility persist,” Malhotra said following the policy announcement.

Economists’ Take

Madhavi Arora, Chief Economist, Emkay Global Financial Services, said:

“RBI’s rate hold, despite cutting inflation forecasts, reflects its focus on one-year-ahead expected inflation, still above 4 per cent.

However, downside risks to growth may emerge later this year, potentially opening space for easing despite the Governor setting a high bar.”

Sandeep Bagla, CEO, TRUST Mutual Fund, noted:

“While headline CPI will be low in coming months, core inflation remains elevated. The RBI’s decision is anchored in long-term stability, with GDP growth steady around 6.5 per cent. Monetary policy support is unlikely to increase significantly in the near term.”

V K Vijayakumar, Chief Investment Strategist, Geojit Investments, called the decision a “dovish pause”:

“The MPC’s unanimous decision to keep the repo rate unchanged at 5.5% even while reducing the CPI inflation forecast to 3.1% for FY 26 from 3.7% earlier can be described as a ‘dowish pause.’ Downtrending inflating in the backdrop of good monsoon and Kharif sowing will keep inflation well anchored enabling the MPC to go for another rate cut in this rate cutting cycle. The RBI Governor’s view that “we are waiting for the transmission of front-loaded rate cut” is the right view under the present circumstances. This policy of dovish pause while continuing with the neutral policy stance is good for the banking and other rate sensitive sectors.

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