The Reserve Bank of India (RBI) decided to maintain its key lending rate at 5.5% during the latest bi-monthly Monetary Policy Committee (MPC) meeting, which concluded on Wednesday. After three days of deliberations, Governor Sanjay Malhotra shared the central bank’s views on the country’s economic outlook, touching upon inflation trends, growth prospects, and the growing concerns over global trade tensions, especially in light of new tariff measures announced by the United States.

This was Malhotra’s fourth monetary policy statement since taking office. In his address, he outlined how India’s economy stands at a crucial juncture, navigating domestic strength while facing external challenges. Stressing the MPC's unanimous decision to hold the repo rate at 5.5%, he added that other key rates, including the Standing Deposit Facility at 5.25% and the Marginal Standing Facility and Bank Rate at 5.75%, would also remain unchanged. The Governor noted that the central bank would remain vigilant, continuously assessing fresh data and evolving economic conditions to guide future policy actions with a neutral stance.

A significant portion of Malhotra’s remarks focused on the uncertainties emerging from global trade disputes. He pointed out that the recent wave of tariff announcements and ongoing trade negotiations could pose headwinds to India’s growth in the near term. While the domestic economy shows resilience, he cautioned that external factors like tariffs, geopolitical tensions, and global financial market volatility could influence India’s growth trajectory.

Despite these risks, the RBI has retained its GDP growth projection at 6.5% for 2025-26. Malhotra attributed this confidence to favourable factors such as an above-normal monsoon, easing inflation, and supportive financial conditions. He also emphasized that sectors like construction and trade are likely to contribute significantly to services sector growth in the coming months.

On inflation, the Governor highlighted that headline inflation has eased considerably, mainly due to volatile food prices, while core inflation has remained stable. He acknowledged that although inflationary pressures have softened, volatility in food prices, especially vegetables, remains a concern. The RBI has previously reduced rates by 100 basis points since February 2025, and Malhotra mentioned that the effects of these cuts are still unfolding across the economy.

He further remarked on the global economic scenario, noting that while political uncertainties have somewhat subsided, global trade issues continue to pose challenges. Policymakers around the world are grappling with slow economic growth, sticky inflation, and elevated public debt. Despite these global challenges, Malhotra expressed optimism about India’s medium-term prospects, backed by strong fundamentals and robust economic buffers. However, he also cautioned that navigating this complex global environment will require careful policy manoeuvring.