India's Central Bank Keeps Interest Rate Unchanged at 5.50%

Post by : Monika

On October 1, 2025, the Reserve Bank of India (RBI) announced that it would keep its key interest rate, known as the repo rate, unchanged at 5.50%. This decision was widely anticipated by economists and market participants.

The RBI's Monetary Policy Committee (MPC) unanimously voted to maintain the current rate, signaling a cautious approach as it assesses the impact of previous monetary and fiscal measures.

Understanding the Repo Rate

The repo rate is the interest rate at which commercial banks borrow money from the RBI. When the RBI changes this rate, it influences the cost of borrowing for banks, which in turn affects the interest rates consumers pay on loans and deposits. Lowering the repo rate can stimulate economic activity by making borrowing cheaper, while raising it can help control inflation by discouraging excessive borrowing.

• Reasons for Keeping the Rate Unchanged
• The RBI's decision to hold the repo rate steady comes amid several economic factors:
• Low Inflation: The central bank noted that inflation has remained subdued, providing room to support economic growth without stoking excessive price rises.

Impact of Previous Measures: Earlier in the year, the RBI had reduced the repo rate by 100 basis points (1 percentage point). The effects of these rate cuts, along with recent tax reductions by the government, are still being felt in the economy.

Global Trade Challenges: India faces trade headwinds, including increased tariffs on its exports to the United States. These external factors have added uncertainty to the economic outlook.

Despite these challenges, the RBI remains optimistic about the domestic economy's resilience and the effectiveness of its policy measures.

Potential for Future Rate Cuts

While the RBI has kept the repo rate unchanged for now, it has indicated that it may consider further rate cuts in the future. The central bank emphasized that the current macroeconomic conditions and outlook have opened up policy space for supporting growth. However, it also noted that the impact of previous monetary policy actions and recent fiscal measures are still unfolding.

Economists suggest that the RBI could lower the repo rate by 25 to 50 basis points in its next policy meeting in December, depending on how economic conditions evolve. Factors such as domestic consumption trends, global trade dynamics, and inflation expectations will influence this decision.

Economic Outlook

The RBI's latest projections include:

• GDP Growth: The central bank forecasts India's Gross Domestic Product (GDP) to grow by 6.8% in the current fiscal year, indicating a stable economic expansion.
• Inflation: The RBI has revised its inflation forecast down to 2.6% for the fiscal year, reflecting easing price pressures.
• These projections suggest that while challenges remain, the Indian economy is on a steady growth path, supported by domestic reforms and government initiatives.
• Measures to Boost Lending and Economic Activity
• In addition to its interest rate decision, the RBI announced several measures aimed at stimulating economic activity:

Enhanced Bank Lending: The central bank has relaxed certain regulatory requirements to encourage banks to lend more to businesses and consumers. This move is expected to support investment and consumption, key drivers of economic growth.

Internationalization of the Rupee: The RBI is taking steps to promote the use of the Indian rupee in international trade. This includes allowing Indian banks to lend in rupees to businesses in neighboring countries and establishing official reference exchange rates for major trading partners' currencies.

These initiatives are designed to strengthen the financial system and enhance India's position in the global economy.

Market Reactions

• Following the RBI's announcement, Indian financial markets responded positively:
• Stock Markets: The BSE Sensex and NSE Nifty indices rose, reflecting investor confidence in the central bank's policies.
• Currency Markets: The Indian rupee remained stable against the U.S. dollar, supported by the RBI's interventions and measures to boost foreign investment.

Analysts view the RBI's actions as a balanced approach to managing economic growth and stability. They believe that the central bank's focus on monitoring economic indicators and adjusting policies as needed will help navigate the challenges ahead.

The Reserve Bank of India's decision to maintain the repo rate at 5.50% reflects a cautious yet optimistic outlook on the economy. By holding rates steady, the RBI aims to support growth while monitoring the effects of previous policy measures. The potential for future rate cuts in December indicates the central bank's readiness to respond to changing economic conditions. Through these actions, the RBI seeks to foster a stable and conducive environment for economic development.

Reserve Bank of India Repo rate Monetary Policy Committee