The Reserve Bank of India (RBI) kept the repo rate unchanged at 5.25% during its latest monetary policy review, indicating a cautious strategy amid ongoing geopolitical risks in West Asia, commodity price volatility and economic uncertainty.
The Monetary Policy Committee (MPC) also retained its neutral stance, which suggests that future policy decisions will hinge on economic data as opposed to a set course for rates.
Continued moderation in inflation was one of the key reasons for maintaining the status quo. Consumer Price Index (CPI) inflation has remained below the medium-term inflation target of the RBI of 4% for the second consecutive month.
Retail inflation levelled off at 3.4% in March and then 3.5% in April, but core inflation held steady at 3.7%. Inflation for fuel was also low, reflecting the fact that domestic fuel prices changed slightly over the period.
Core inflation remained stable at 3.7%, the Governor said.
Governor announced that the Real GDP growth has been projected at 6.6%, down from the earlier projection of 6.9% for FY27.
The 30-basis-point cut brings a sign of uncertainty over global trade, supply chain disruptions and geopolitical developments. The downgrade indicates a shift in policymakers' thinking to be more cautious about the rate of economic growth.
In addition to interest rates, the RBI unveiled several steps to boost foreign capital inflows.
The central bank increased the size of the Fully Accessible Route (FAR), which covers all new issues of 15-year, 30-year and 40-year government securities, thus opening up a larger share of sovereign debt to foreign investors.
Further, the investment restrictions for short-term investments, concentration limits and exposure cap for Foreign Portfolio Investors (FPIs) under General Route have been lifted. This step is likely to make the bond market in India more liquid and increase the participation from investors.
Investment limits of Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and other Persons Resident Outside India (PROIs) in listed equity instruments have also been enhanced.
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India's forex reserves are currently at $682.3 billion, which will help the country withstand external shocks and currency volatility.
Also, a concessional foreign exchange swap facility will be made available until September 30, 2026, to encourage external commercial borrowings (ECBs) by public sector undertakings (PSUs).
The central bank also extended the export proceeds realization period to nine months, which is likely to benefit exporters and enhance foreign exchange inflows.