India’s central bank maintains its repo rate at 5.25% amid uncertain inflation and growth prospects, with external tensions and domestic resilience shaping policy decisions for the fourth consecutive meeting.
India’s central bank kept its policy repo rate unchanged at 5.25 per cent on August 5, holding fire for the fourth meeting in a row as policymakers weighed a stubborn mix of domestic resilience and external strain. The decision, taken by the Monetary Policy Committee, comes against a backdrop of geopolitical tension in the Middle East, fresh US tariff pressures, supply-chain disruption and uncertainty over the monsoon, all of which have made the inflation outlook harder to read.
The Reserve Bank of India said its latest projections point to inflation easing only marginally, with the forecast trimmed to 5 per cent, while growth was nudged up to 6.7 per cent for the current financial year. Recent data underline why the committee remains cautious: CPI inflation rose to 4.38 per cent in June, its highest since December 2024, while wholesale inflation climbed to 9.87 per cent, driven by food, mineral oils, metals and chemicals. The gap between retail and wholesale prices also highlights the way fuel shocks and import costs are feeding through the economy.
One reason the inflation picture is becoming more complicated is the change in the CPI basket after the shift to a 2024-25 base year. Food and beverages now carry a lower weight, while services take a larger share, giving greater influence to items that tend to drive core inflation. The RBI has put core inflation at 4.3 per cent, but the combination of stronger fuel prices, erratic rainfall and higher input costs could still trigger second-round effects, broadening price pressures beyond food.
The growth debate is shifting just as sharply. With consumption already accounting for a large share of output, economists say India will need more private investment to sustain faster expansion. Broad-based non-food credit growth, which reached 17.7 per cent by July 15, may help, but the article argues that productive investment, not just higher output, will determine whether growth becomes more durable. On the external side, the piece says a current account deficit of 2.5 per cent to 3 per cent of GDP would be manageable if financed largely by foreign direct investment rather than debt, even as efforts to attract inflows into FCNR(B) deposits have helped steady the rupee for now.
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