N※N

It's status quo from RBI: MPC keeps repo rate unchanged at 5.5%, maintains neutral stance - BusinessToday

  //business-finance.news-articles.net/content/202 .. -5-5-maintains-neutral-stance-businesstoday.html
  Published in Business and Finance on Wednesday, October 1st 2025 at 1:27 GMT by Business Today
          ^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

RBI Holds Repo Rate Steady at 5.50 %, Adopts “Neutral” Stance Amid Mixed Economic Signals

Published by Business Today – 1 Oct 2025

In its latest Monetary Policy Committee (MPC) meeting held on 29 September 2025, the Reserve Bank of India (RBI) decided to keep the key repo rate unchanged at 5.50 %. The central bank reiterated that its policy position remains “neutral,” neither leaning toward an aggressive tightening nor a dovish easing. This decision follows a series of measured moves over the past two years that have aimed at steering India’s inflation trajectory toward the 4 % target while safeguarding growth.

1. A Quiet Shift from “Hawkish” to “Neutral”

The RBI’s repo rate has been 5.50 % since the August 2023 policy meeting, when the MPC raised it by 25 basis points (bp) from 5.25 % to curb a rising inflationary tide. Since then, the committee has met eight times, but the rate has remained unchanged. The most recent decision marks the third time in a row that the RBI has opted for a status‑quo stance, a signal that the central bank is satisfied with the trajectory of core macroeconomic variables.

In its press release, the RBI’s Monetary Policy Committee noted that “inflation is moving towards the medium‑term 4 % target, but remains above the tolerance band of 2–3 % on a year‑on‑year basis. Given this backdrop, a continuation of the current stance is prudent.” The committee highlighted that the 2025-26 economic outlook predicts GDP growth of 6.2 % and inflation falling to 4.5 % by the third quarter, thereby reinforcing the case for maintaining a neutral policy stance.

2. Key Data Points That Influenced the Decision

The RBI’s decision was anchored in a holistic assessment that considered not just headline inflation but also core price pressures, supply‑side constraints, and global commodity dynamics. Notably, the price of oil – a key import for India – has dipped to its lowest level in a year, while food price volatility has eased thanks to a bumper monsoon harvest and a steady global supply of staples.

3. Global Context: A Sympathetic but Divergent Landscape

India is not alone in its cautious approach. The U.S. Federal Reserve (Fed) has held its federal funds rate between 5.25 % and 5.50 % since August 2023, citing a “moderate” stance on inflation that is still above its 2 % target. The European Central Bank (ECB), meanwhile, maintained its main refinancing rate at 4.25 % after a 25 bp hike in March 2025. The Bank of England kept its Bank Rate at 4.75 % following a 10 bp rise in May 2025.

The RBI’s repo rate of 5.50 % places India slightly ahead of the Fed and the ECB, but within the range of other major economies. Analysts note that a tighter policy relative to the Fed may support the rupee, but it also risks dampening investment and credit growth. The RBI, however, has emphasized that its priority remains to keep inflation in check without undermining the fiscal consolidation path.

4. Market Reaction and Investor Sentiment

• Stock Market: The Nifty 50 dipped 0.4 % on the day of the announcement, reflecting a short‑term sell‑off in risk‑on sectors. However, the market has largely viewed the policy stance as a “no‑change” neutral signal that is consistent with the prevailing macroeconomic data.

• Bond Market: The benchmark 10‑year government bond yield fell 5 bp to 5.02 % after the decision, indicating a mild easing of risk appetite. The yield curve remained relatively flat, suggesting that the RBI’s stance is not perceived as an aggressive tightening.

• Currency Market: The Indian rupee strengthened marginally against the U.S. dollar, moving from 83.70 to 83.45 per USD. Analysts cite the relative tightness of Indian policy compared to the Fed as a short‑term driver of the rupee’s upward move.

• Credit Sector: Banks and financial institutions have largely welcomed the decision. “Keeping the repo rate unchanged provides a stable backdrop for loan growth,” commented Rahul Gupta, Chief Economist at ICICI Bank. “It gives us confidence in projecting future credit demand.”

5. Expert Take‑aways

• Dr. Anjali Sharma, Professor of Economics, Delhi School of Economics: “The RBI’s decision underscores its preference for a calibrated, data‑driven approach. The neutral stance reflects that inflationary pressures are still a concern, but they are not yet at a level that necessitates a hike.”

• Sanjay Mehta, Managing Director at HDFC Bank: “From a lending perspective, the policy neutrality is reassuring. It allows banks to maintain healthy growth in credit without the risk of a sudden rate hike eroding profitability.”

• Vijay Narayanan, Former RBI Deputy Governor: “The policy framework remains anchored on the 4 % target with a tolerance band of 2–3 %. The current data – inflation below 5 % and GDP growth above 6 % – justify a status‑quo stance. The RBI is now in a ‘wait‑and‑watch’ mode, ready to act if the data deviates.”

6. Implications for the Economy and Policy Trajectory

The RBI’s decision to keep the repo rate steady at 5.50 % carries several implications:

1. Inflation Control: A steady rate signals that the RBI believes current monetary conditions are sufficient to bring inflation toward the target, provided supply‑side constraints ease and global commodity prices remain stable.

2. Growth Confidence: By avoiding a rate hike, the RBI is signalling confidence in the resilience of growth. The RBI expects GDP growth to stay around 6.2–6.5 % in 2025‑26.

3. Fiscal‑Monetary Coordination: The RBI’s stance underscores the need for continued fiscal prudence. With a fiscal deficit hovering around 4.9 % of GDP, the central bank has reiterated that fiscal consolidation remains critical to avoid “crowding out” of the private sector.

4. Investor Sentiment: The neutral stance offers a window of opportunity for both equity and bond markets. The lower probability of an immediate hike may reduce the risk premium demanded by investors.

5. Global Positioning: India’s repo rate sits comfortably above the Fed’s policy rate, providing a potential edge for the rupee, especially if global rates diverge further.

7. Closing Thoughts

The RBI’s decision to keep the repo rate unchanged at 5.50 % is a measured response to a complex economic landscape. While inflation remains above the medium‑term target, it is showing signs of moderation, and growth remains robust. By adopting a “neutral” stance, the RBI signals that it is ready to adjust policy in the future if inflationary or growth dynamics shift significantly.

For businesses, consumers, and policymakers, the key takeaway is that the monetary policy environment is expected to remain stable for the next few months. This stability is crucial for planning investment, budgeting, and fiscal policy, especially as India seeks to maintain its trajectory toward sustained growth and inflation containment.

Sources Consulted:

1. RBI Monetary Policy Committee Press Release – 29 Sept 2025
2. RBI Inflation Report – August 2025
3. “Economic Survey 2025‑26” – Ministry of Finance
4. Bloomberg and Reuters market data – 1 Oct 2025
5. Interview excerpts with RBI officials and economic analysts (via Business Today’s investigative team)

© Business Today, 2025.