The Reserve Bank of India (RBI) kept the policy repo rate steady at 5.50%, according to the Monetary Policy Committee decision announced by the RBI Governor Sanjay Malhotra on Wednesday.

Accordingly, the standing deposit facility (SDF) rate remains at 5.25%, while the marginal standing facility (MSF) rate and the Bank Rate are unchanged at 5.75%.

The RBI noted that domestic growth remains resilient, supported by rural consumption, government capital expenditure, and robust services activity. However, it flagged uneven performance in the industrial sector, particularly in electricity and mining.

Real GDP growth for fiscal 2026 has been retained at 6.5%, with quarterly projections of 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. GDP growth for first quarter of fiscal 2027 is projected at 6.6%.

Headline CPI inflation declined to a 77-month low of 2.1% in June, driven by deflation in food prices. Food inflation turned negative for the first time since February 2019, aided by improved agricultural activity and adequate buffer stocks.

Core inflation rose to 4.4% in June, led in part by continued increases in gold prices.

For Fiscal 2026, CPI inflation is now projected at 3.1%, with Q2 at 2.1%, Q3 at 3.1%, and Q4 at 4.4%. Inflation for Q1 FY27 is expected at 4.9%. The RBI cautioned that inflation could rise above the 4% target from Q4 onward due to base effects and demand-side pressures.

The MPC noted that while average inflation this year is likely to remain significantly below the target, "CPI inflation is likely to edge up above the 4 per cent target from Q4:2025-26 onwards."

"Moreover, core inflation has been rising steadily from the recent low of 3.6 per cent recorded during December-January 2024-25 and averaged 4.3 per cent in Q1 this year," the central bank said.

The RBI also noted that the full impact of the 100 basis points in rate cuts since February is still unfolding and further transmission is awaited.

"On balance, therefore, the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate of 5.5 per cent and wait for further transmission of the front-loaded rate cuts to the credit markets and the broader economy," it said.