Day 22
Economy & BudgetImportant2025-08-06
RBI Keeps Repo Rate Unchanged at 5.50%
In News
What Happened
On August 6, 2025, the Reserve Bank of India's Monetary Policy Committee (MPC) unanimously decided to keep the repo rate unchanged at 5.50 percent. The MPC also maintained a 'neutral' monetary policy stance. While retaining the real GDP growth projection at 6.5 percent, the RBI sharply reduced its CPI inflation forecast for FY26 to 3.1 percent.
Why It Matters
This decision provides stability to borrowers and financial markets by signaling that interest rates have peaked for now. It reflects the central bank's confidence that food inflation is cooling down, allowing policymakers to support economic growth amidst global trade uncertainties.
Background
History & Context
The Monetary Policy Committee (MPC) was established in 2016 under the RBI Act to maintain price stability while keeping growth in mind. The MPC is mandated to target Consumer Price Index (CPI) inflation at 4 percent, with a tolerance band of 2 to 6 percent. A 'neutral' stance indicates that the RBI has the flexibility to either increase or decrease policy rates in the future depending on incoming macroeconomic data.
What Changed
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Repo Rate: Remained steady (BEFORE: 5.50 percent, NOW: 5.50 percent).
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CPI Inflation Forecast for FY26: Revised downwards (BEFORE: 3.7 percent, NOW: 3.1 percent).
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Monetary Policy Stance: Remained consistent (BEFORE: Neutral, NOW: Neutral).
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Real GDP Growth Projection: Retained (BEFORE: 6.5 percent, NOW: 6.5 percent).
Prelims Angle
NCERT Connection
This event directly applies concepts from Class 12 Macroeconomics Chapter 3, 'Money and Banking'. It illustrates how the RBI uses the repo rate as a key quantitative instrument to manage liquidity in the economy and achieve its inflation targeting mandate.
Practice Questions
Q1
Correct Statement(s)With reference to the RBI's monetary policy announcement in August 2025, consider the following statements: 1. The Monetary Policy Committee unanimously decided to keep the repo rate unchanged at 5.50%. 2. The RBI increased its CPI inflation forecast for FY26 due to rising food prices. Which of the statements given above is/are correct?