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RBI Monetary Policy

📍 Mumbai, August 6, 2025 — The Reserve Bank of India (RBI) has kept its benchmark repo rate unchanged at 5.5%, halting its recent cycle of rate cuts as trade tensions with the U.S. threaten to destabilise India’s external sector. The recent RBI monetary policy signals a shift toward cautious policy amid global economic uncertainty.

This decision by the Monetary Policy Committee (MPC) follows a 50-basis-point cut in June. It underscores the RBI’s intent to strike a balance between nurturing domestic growth and guarding against external shocks.

🗣️ RBI Governor Sanjay Malhotra’s Statement:

“Global trade frictions, especially those involving large economies, pose risks to India’s recovery. While domestic fundamentals remain strong, the external environment demands vigilance,” said Governor Malhotra during the press conference.

🔍 Key Highlights from the RBI Monetary Policy Meeting:

• RBI Monetary Policy Rate: Maintained at 5.5%
• Inflation (CPI June): Dropped to 2.1%, a six-year low, driven by falling food prices
• GDP Growth (Q1 FY25): 7.4%, higher than expected
• FY25 GDP Forecast: 6.5%, unchanged
• Inflation Target FY26: Revised down to 3.1% from 3.7%
• Market Reaction: Nifty 50 and Sensex saw slight dips; INR strengthened to ₹87.72/USD

Trump’s Trade Threats Add Heat

The RBI Monetary Policy decision comes just days after U.S. President Donald Trump announced a 25% tariff on Indian imports, accusing New Delhi of deepening ties with Russia, particularly in defence and energy trade. These developments pose risks to India’s export sector and capital flows.

“Trump’s tariff move could weaken India’s competitiveness in global trade just as manufacturing was gaining traction,” said one chief economist.

🧮 RBI’s Strategic Shift: Neutral & Data-Driven

• The central bank officially shifted from an “accommodative” stance to a “neutral” policy outlook.
• Rate decisions going forward will depend on macroeconomic data and geopolitical stability.
• Analysts speculate that further rate cuts are unlikely unless inflation overshoots or growth falters significantly.

🏦 Impact Across Sectors

• MSMEs and Housing: Slower credit growth as lending rates stabilise
• Banking & Finance: Stronger INR may ease imported inflation
• Manufacturing/Exports: At risk from U.S. tariffs and geopolitical realignment
• Consumer Sentiment: May remain resilient heading into the festive season

📌 Conclusion

As India navigates a fragile global landscape with domestic resilience, the RBI’s steady hand provides a stabilising anchor. However, the U.S.-India geopolitical rift and external macro shocks remain wildcards that could force swift policy recalibration in the coming quarters.

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