RBI MPC holds repo at 5.25% amid inflation risk warning

Policy decision: rates on hold, stance stays neutral

The Reserve Bank of India’s Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate unchanged at 5.25%. The committee also decided to maintain its monetary policy stance at “neutral”. The decision marked another review where the RBI preferred to pause, balancing domestic growth considerations with rising external risks. Alongside the rate decision, the central bank announced multiple measures aimed at supporting the rupee. Markets responded immediately across foreign exchange, bonds, and equities.

Why the RBI focused on the rupee this time

The RBI’s communication placed clear emphasis on currency stability, with steps unveiled to attract foreign investment flows. The context was a rupee facing pressure amid foreign outflows and costlier oil. The central bank indicated that financial market volatility had increased, even as some commodity prices such as metals and gold had moderated. In the RBI’s assessment, geopolitical uncertainty had risen since the last policy, adding to near-term risks for inflation and growth.

Inflation: forecast raised, risks seen on the upside

The MPC flagged that the risks of higher inflation have amplified. It said inflation is still below target, but risks are now on the upside. The RBI also warned that the prolonged West Asia conflict could be an important risk channel, including through supply chain disruption and higher energy costs. Governor Sanjay Malhotra attributed a recent uptick in inflation largely to unfavourable base effects and higher precious metal prices. He also said that excluding precious metals, underlying inflationary pressures remain muted and within the tolerance band. Malhotra said the upward revision in the inflation outlook was primarily due to an increase in precious metal prices, which contribute around 60 to 70 basis points.

What the RBI said about growth and policy settings

The RBI framed its decision as consistent with a supportive domestic growth outlook and manageable inflation. The neutral stance signals flexibility, allowing the central bank to respond to evolving data rather than committing to an easing or tightening cycle. Malhotra said interest rates are likely to remain low for a prolonged period as growth holds up and inflation remains within comfort levels. The RBI also indicated it would keep a close watch on conditions and act if needed to maintain stability.

Markets react: rupee strengthens after RBI measures

The rupee strengthened after the announcement. In one market snapshot, it climbed 20 paise soon after the decision. The currency, which opened at 95.71, strengthened to 95.54, compared with its previous close of 95.78. Another reported move showed the rupee rising 0.35% to 95.48 against the dollar after the RBI decision. The immediate reaction reflected improved sentiment after the central bank signalled steps to pull in dollars.

Bond market reaction: 10-year yield eases

India’s benchmark 10-year bond yield softened after the decision. The 10-year benchmark yield eased by five basis points to 6.96%, from its previous close of 7.01%. Another market update also placed the 10-year yield slightly lower at 6.96% following the RBI decision. The move suggested that the status quo on rates, along with measures to improve foreign inflows, helped reduce near-term pressure on yields.

Equity market: marginal gains as policy stays predictable

Equities held onto gains after the RBI announcement. The benchmark Nifty 50 was up 0.18% at 23,459.4, while the BSE Sensex gained 0.2% to 74,514.76 in one update. Another reading also described benchmark equity indices adding marginally to early gains and being up around 0.2%. The market reaction indicated relief that the RBI did not introduce an unexpected policy shift amid a volatile global backdrop.

Background: last repo cut and the 2025 easing cycle

The RBI last reduced its benchmark repo rate by 25 basis points to 5.25% in December 2025. Another market note referenced cumulative rate cuts of 125 basis points during 2025. This history matters because it sets the starting point for how investors interpret a prolonged pause: as a decision to preserve the impact of earlier easing while monitoring inflation risks. The current approach also reflects how external shocks can limit the room to prioritise growth alone.

Key numbers at a glance

What investors will watch next

The RBI’s combination of a steady repo rate and rupee-support measures places attention on incoming inflation prints, currency moves, and global commodity prices. With the MPC warning that inflation risks have amplified and pointing to geopolitical uncertainty, markets are likely to track any signs of renewed pressure from oil and supply-chain disruptions. For now, the RBI has kept policy settings unchanged, retained flexibility through a neutral stance, and signalled that it will act if needed to maintain stability.