RBI Rate Unchanged, 6.5% GDP Outlook Counters Trump's "Dead Economy" Jibe

The Reserve Bank of India (RBI) has kept its repo rate unchanged at 5.5% as the rupee remains under pressure due to US President Donald Trump's tariff threat. The rupee fell 16 paise yesterday, after Trump issued fresh threats to hike tariffs on Indian goods.

The decision was announced this morning at the Monetary Policy Committee (MPC) meeting, which is held every two months to draw up the central bank's financial strategy. In June, the RBI had cut the key rate by 50 basis points in line with the softening inflation.

It was decided to continue with the neutral stance, said RBI Governor Sanjay Malhotra at the end of the meeting, stating that the uncertainty over tariffs is still evolving and a monetary policy transmission is underway. The MPC resolved to maintain a close vigil on developing data.

The prospects of external demand remain uncertain amidst ongoing tariff announcements and trade negotiations, said Mr Malhotra, adding that the headwinds emanating from the prolonged geopolitical tensions pose risks to the growth outlook.

GDP Growth Outlook

The real GDP growth projected for the current fiscal is 6.5%, reflecting a continuous growth outlook despite global concerns. This also contradicts Trump's "dead economy" jibe at India over its trade with Russia. The growth has been projected at 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. The central bank has taken decisive, forward-looking measures to support growth, assured Mr Malhotra.

Mr Malhotra also shared the RBI's outlook on geopolitical challenges. 

Geopolitical uncertainties have somewhat abated, but global trade challenges continue to linger, the RBI chief said. While the Indian economy holds bright prospects over the medium term, he said that policymakers across the globe are faced with muted growth, slowing inflation.

Moderately High Inflation

Headline inflation is lower due to volatile food prices, but the RBI has projected it to go up from the last quarter. The inflation outlook for the current fiscal has become more benign than expected in June, said Mr Malhotra, projecting that retail inflation may edge above 4% in the January-March quarter.

Core inflation went up slightly in June due to an increase in gold prices and is likely to remain moderately above 4% during the year, he added.

Experts said the MPC decision reflects the RBI's cautious approach in a complex global landscape.

"For borrowers, this translates directly into a period of stability, with predictable EMIs and interest rates. This also provides the banking system a crucial window to further transmit the benefits of previous rate reductions," said Amit Prakash Singh, co-founder, Square Yards.

Stability in monetary policy augurs well for homebuyers and real estate developers, particularly in the affordable and mid-income segments, said Vimal Nadar, national director, Colliers India.