RBI MPC Keeps Repo Rate Unchanged at 5.5% Amid Trump Tariff Threats: GDP and Inflation Targets for Q1 FY27

In a much-anticipated move on August 6, 2025, the Reserve Bank of India’s Monetary Policy Committee (MPC) kept the key repo rate unchanged at 5.5%. This was a unanimous decision by the committee, marking a pause after three back-to-back rate cuts totaling 100 basis points earlier in the year. 

The stance remaining “neutral” signals that any future policy moves will be highly data-dependent, with a special focus on inflation and growth trends.

Headline Decisions at a Glance

• Repo Rate: Maintained at 5.5%

• Stance: Neutral

• GDP Growth Projection Q1 FY27: 6.6%

• CPI Inflation Projection Q1 FY27: 4.9%

The Context: Trade Tensions and Tariff Threats

The RBI’s steady hand comes in the wake of sharp escalations in US-India trade frictions. Former US President Donald Trump’s fresh threats to “substantially” hike tariffs on Indian goods—mainly as a response to Indian oil imports from Russia—have cast a shadow over export prospects.

 While details and timing remain vague, Indian officials are closely monitoring the situation, and key export sectors like textiles, chemicals, auto parts, and gems face acute risks from such punitive tariffs. The RBI notes that global trade headwinds, especially from advanced economies and trade tensions, add uncertainty to India’s recovery path.

RBI’s Rationale: Why Hold the Repo Rate?

RBI Governor Sanjay Malhotra pointed to the current macroeconomic environment characterized by:

• Sustained moderation in headline inflation (2.1% in June, a 77-month low),

• Steady core inflation (4.4% in June),

• Easing but still-volatile food prices, and

• RBI repo rate 2025

• Global uncertainties, notably involving crude oil and trade.

While frontloaded rate cuts (100 bps since February 2025) are expected to gradually percolate through the financial system, the central bank prefers to pause and wait for the full transmission of these measures—especially with the festive season approaching and credit demand likely to pick up.

Inflation and GDP Outlook for FY27

• Growth: RBI retained India’s real GDP growth forecast for FY26 at 6.5%. For the first quarter of FY27, GDP is expected to grow by 6.6%. The RBI cited resilient domestic activity—even as global demand faces pressure.

• Inflation: Headline CPI inflation for FY26 is projected at 3.1%, but this is expected to rise to 4.9% in Q1 of FY27 due mostly to volatile food prices.

  • Quarterly breakdown: Q2 FY26—2.1%, Q3 FY26—3.1%, Q4 FY26—4.4%, Q1 FY27—4.9%

  • Food inflation is expected to remain a wildcard through the fiscal.

  • Core inflation is forecasted to hover in the 4% range.

Challenges Ahead: Tariffs and Trade Uncertainty

Trump’s tariff threats come at a delicate moment. The US is India’s biggest export market, and Indian policymakers worry that significant new tariffs could sap earnings, endanger jobs, and widen the current account deficit. 

The sectors most at risk—like textiles, chemicals, and auto parts—are exploring ways to diversify markets, but the transition will not be immediate.

India’s government is reportedly working on a ₹20,000 crore export promotion project to buffer exporters and maintain “Brand India” on the global stage in the face of such policy shocks. Also, India has made it clear it would defend its economic interests firmly and not rush to alter its Russian oil imports just to placate Washington.

Market Reaction

Markets were mostly flat following the decision, reflecting the expected nature of the pause but also unease about external trade risks and a “wait-and-watch” sentiment. Bond yields held steady, while rate-sensitive sectors such as housing and auto remained cautious in their outlook.

Takeaways for Businesses & Investors

• Borrowers & Homebuyers: No immediate impact on borrowing rates, but earlier cuts are expected to further lower loan EMIs in the coming months.

• Exporters: Need to prepare for potential re-routing of trade, seek alternative markets, and stay alert for upcoming government support measures.

• Investors: Continue to watch for global cues—tariffs, crude prices, and global monetary policy developments will remain key drivers.

• Consumers: Food inflation may become more visible in late FY26 and Q1 FY27, particularly if tariffs fuel cost-push pressures.

In summary: The RBI’s status quo reflects a conscious strategy: let recent rate cuts work their way through the economy while staying vigilant to external risks—none more acute right now than Trump’s tariff moves and global trade tremors.

 Amid volatility, the RBI’s calibrated approach projects stability but signals readiness to act—should either inflation or global trade shocks intensify further.