RBI Holds at 5.25% as $41 Billion Floods Into India

The Reserve Bank of India kept its benchmark repo rate unchanged at 5.25% for a fourth consecutive meeting on Tuesday, a unanimous decision widely anticipated by markets. Governor Sanjay Malhotra struck a measured, data-dependent tone, signalling no urgency to tighten policy despite robust domestic growth.

The central bank maintained its neutral bias, noting risks to growth and inflation remain evenly balanced. That stance, combined with a surge in overseas capital, is lending support to the rupee, analysts say.

Contents

01

The Decision: Unanimous Hold at 5.25%

02

Growth and Inflation: A Balancing Act

03

Capital Inflows Surge Past $41 Billion

04

What It Means for the Rupee

05

The Rate Outlook: Hikes Deferred, Not Cancelled

The Decision: Unanimous Hold at 5.25%

The RBI's rate-setting panel voted unanimously to leave the repo rate at 5.25%, extending a pause spanning four meetings. The decision aligned with consensus expectations.

Governor Malhotra said the central bank is in watchful waiting mode, monitoring how global and domestic conditions evolve. According to MUFG, the RBI's strategy this cycle leans towards capping the risk of rupee weakness and managing excessive FX volatility, rather than actively driving appreciation.

Growth and Inflation: A Balancing Act

The RBI raised its real GDP growth projection for the second quarter to 6.4%, up from 6.3%, while keeping the third-quarter forecast at 6.5%. For the full fiscal year 2026/27, the central bank lifted its growth outlook to 6.7% from 6.6%.

On inflation, the RBI lowered its FY2026/27 forecast to 5.0% from 5.1% and expects core inflation to decline after peaking in the third quarter. The mix of resilient growth and easing price pressures gave the committee room to hold steady.

Capital Inflows Surge Past $41 Billion

One of the most striking figures alongside the rate decision was the scale of foreign capital entering India. According to the RBI, the push to attract overseas investment has drawn nearly $41 billion since June, covering almost twice India's current account deficit.

The inflows follow measures announced in June to bolster capital flows. MUFG raised its forecast for total inflows from these FX measures to $87 billion, up from $60 billion, with the bulk expected in the September quarter. The RBI expects the balance of payments to register a healthy surplus.

What It Means for the Rupee

Brown Brothers Harriman analyst Elias Haddad noted USD/INR firmed after recently testing a one-month low near 94.9225. He pointed to three supportive factors: positive real interest rates, active RBI FX intervention aimed at strengthening the currency, and the June capital-inflow measures.

MUFG forecasts USD/INR grinding lower over the next three to six months towards 94.00, before rebounding towards 96.00 in the next calendar year.

The Rate Outlook: Hikes Deferred, Not Cancelled

Despite the hold, MUFG continues to expect the RBI will raise rates by 50 basis points to 5.75%. The timing has been pushed to December 2026 from a previous expectation of October.

For now, Governor Malhotra's neutral tone suggests the RBI is content to assess incoming data before its next move.