The Reserve Bank of India kept the key interest rate, or repo rate, unchanged at 5.5% on Wednesday, for the second consecutive time, Governor Sanjay Malhotra said after a meeting of the Monetary Policy Committee.

In the meeting held in the first week of August, the RBI also kept the repo rate unchanged and kept its stance on the monetary policy as 'neutral', after three consecutive cuts totaling 100 basis points across February, April, and June.

Wednesday's meeting was keenly eyed by all stakeholders, as it came after the imposition of a steep rise in the tariffs by the US and the cut in the goods and services tax (GST) in India.

"The MPC observed that the overall inflation outlook has turned even more benign in the last few months, due to a sharp decline in food prices and the rationalisation of GST rates," said Malhotra.

India's retail inflation has been below 4% since February, and eased to a six-year low of 2.07% in August, driven by easing food prices and a favourable base effect.

The central bank has revised its average headline inflation projection to 2.6% for 2025-26 from 3.7% projected in June and 3.1% in August.

The Reserve Bank has also revised its growth estimates for the current fiscal year upwards to 6.8%, from the 6.5% GDP growth rate for 2025-26 projected in August.

"Buoyed by good monsoon, the Indian economy continues to exhibit strength by registering a higher growth in Q1 2025-26. At the same time, there has been a considerable moderation in headline inflation," Malhotra said.