RBI holds rates steady as expected, says tariffs pose growth risks

Investing.com-- The Reserve Bank of India kept its interest rates unchanged on Wednesday in line with market expectations, while it maintained its "neutral" stance, citing steady core inflation.

The RBI held benchmark policy repo rate steady at 5.50%.

The hold comes after the RBI unexpectedly reduced rates by 50 basis points in June, but shifted its stance to "neutral" from accommodative".

Markets were expecting steady rates amid robust economic growth seen in the first quarter, although some analysts saw scope for a 25 basis point cut, especially amid subdued inflation and U.S. trade pressures.

RBI Governor Sanjay Malhotra said the lower headline inflation was driven by volatile food prices, but that the core inflation remains sticky, supporting Wednesday’s decision to hold.

"Monetary policy transmission is continuing. The impact of the 100 basis points rate cut since February 2025 on the broader economy is still unfolding," Malhotra said in his statement.

The central bank maintained its "neutral" stance, saying the impact of the frontloaded 0.5% cut in June was yet to be seen in credit markets.

"The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth inflation dynamics to chart out the appropriate monetary policy path," Malhotra added.

He said global uncertainties have "somewhat abated," but added that external demand remains uncertain due to ongoing tariffs and poses risks to the growth outlook.

U.S. President Donald Trump has imposed 25% tariffs on Indian imports, significantly higher than some of its Asian peers. He has also threatened to impose additional duties over India’s purchase of energy and weapons from Russia.

"The inflation outlook for 2025-26 has become more benign than expected in June," the central bank said, lowering the central bank’s inflation forecast to 3.1% from 3.7% earlier.

However, CPI inflation is forecast to edge up above 4% in the fourth quarter of this year and beyond, while the core measure is expected to remain moderately above 4% during the year.

The central bank maintained its economic growth projection at 6.5% for 2025-26.