Key Takeaways
- The RBI held the repo rate at 5.25% on 5 August 2026, its fourth consecutive pause
- The decision was unanimous and the stance remains neutral
- Inflation is expected to peak at 5.9% in Q3 FY27, above the 4% target
- The FY2026 growth forecast was raised 10bps to 6.7%
- Cumulative cuts totalled 125bps between February 2025 and June 2026
- Outstanding loan rates fell 91bps against deposit rates down only 51bps
- Citi sets the hike threshold at core inflation sustained above 4.5%
- The next MPC meeting is 5–7 October 2026
India’s central bank paused for a fourth straight meeting on 5 August, having cut 125 basis points since February 2025. It now expects inflation to peak well above target and it raised its growth forecast anyway.
This is economic reporting, not investment advice. Figures come from the RBI’s own policy statement of 5 August 2026. Consult a licensed adviser before making financial decisions.
A note on the charts. The RBI figures below are verified and chart-ready. The cross-Asia comparison in Chart 1 requires current policy rates for other central banks, which should be sourced from a live rates table before publication see the chart specifications section.
Summary
The Reserve Bank of India held its policy repo rate at 5.25% on 5 August 2026, the fourth consecutive pause since February. The decision was unanimous and the stance remains neutral. The RBI expects inflation to peak at 5.9% in the third quarter of FY27, above its 4% target, while simultaneously raising its FY2026 growth forecast to 6.7%.
What the RBI Decided
| Rate | Level |
| Policy repo rate | 5.25% — unchanged |
| Standing Deposit Facility | 5.00% |
| Marginal Standing Facility | 5.50% |
| Bank Rate | 5.50% |
| Stance | Neutral |
Governor Sanjay Malhotra announced the decision after the Monetary Policy Committee met from 3 to 5 August. In his words, the MPC decided unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25%.
The next meeting is scheduled for 5–7 October 2026.
Why This Position Is Unusual
The RBI is holding rates steady while forecasting inflation well above its own target, and raising its growth forecast at the same time.
Three things sit awkwardly together:
- Inflation is expected to peak at 5.9% in Q3 FY27 comfortably above the 4% target, though within the 2–6% tolerance band
- Growth forecast raised by 10 basis points to 6.7% for FY2026
- Rates unchanged, with a neutral stance
Most central banks facing rising inflation and strengthening growth would be tightening. The RBI is doing neither — it has stopped cutting without starting to raise.
The reasoning is that the inflation is imported rather than domestic. The RBI attributes the expected rise to the West Asia crisis, higher market prices and supply chain disruptions conditions monetary policy cannot address. Raising rates would not lower the oil price.
Citi’s chief India economist Samiran Chakraborty put the threshold precisely: “Although core and underlying inflation have risen modestly, they remain within the RBI’s comfort zone. Consequently, a rate hike is unlikely in 2026 unless core inflation sustains above 4.5%.“
That is the number to watch. Not headline inflation at 5.9%, but core sustained above 4.5%.
The Easing Cycle That Just Stopped
| Date | Action |
| Feb 2025 – Jun 2026 | 125 basis points of cumulative cuts |
| December 2025 | Final cut: 25bps to 5.25% |
| February 2026 | Stance switched to Neutral; first hold |
| April, June, August 2026 | Three further holds |
Four consecutive pauses now, following one of the more aggressive easing cycles in the region.
The Transmission Problem
This is the most revealing data in the policy statement, and the least reported.
Of the 125 basis points the RBI cut, the pass-through has been badly uneven:
| Measure | Change |
| Outstanding loan rates | 91 basis points |
| Outstanding deposit rates | 51 basis points |
| Gap | 40 basis points |
Banks’ income from existing loans has fallen roughly twice as fast as their cost of deposits. Net interest margins are already moderating, and credit growth continues to outpace deposit growth.
The consequence: even with the RBI paused, the effect of earlier cuts keeps working through bank earnings as more loans reprice. Banks cannot cut deposit rates aggressively either, because they need the deposits to fund credit growth.
A pause does not stop transmission. It only stops adding to it.
What Is Driving the Caution
The RBI cited a specific list of downside risks:
- Renewed tensions in West Asia and the associated oil price effects
- Risk of disruption to global supply chains
- Volatility in international financial markets
- Weather-related shocks, with an erratic southwest monsoon
Against those: resilient domestic demand, steady corporate performance and healthy capital inflows which is why the growth forecast went up rather than down.
PL Capital’s lead economist Prachi Kele characterised the expected approach ahead of the meeting: a cautious tone amid war-related uncertainty, with a data-dependent stance on future decisions.
Also Announced
Several regulatory measures accompanied the rate decision:
- Draft guidelines on resuming licensing of Urban Co-operative Banks
- Updated Credit Monitoring Arrangement directions for Rural Co-operative Banks, last revised in 2008
- A standardised framework on lending rate transparency across all regulated entities
- A proposed depository receipts framework potentially opening REITs and listed InvITs to global investors
For borrowers: those on floating-rate loans tied to the External Benchmark Lending Rate see no immediate EMI change. Fixed deposit yields are expected to hold steady.
The Five Charts: Specifications
Four of these can be built entirely from verified figures below. The first requires external data.
Chart 1 — The outlier position. A horizontal bar chart of current policy rates across major Asian central banks, with India highlighted at 5.25%. Data needed: current policy rates for the BOJ, PBOC, Bank of Korea, Bank Indonesia, Bangko Sentral ng Pilipinas, Bank of Thailand and Bank Negara Malaysia, plus the direction of each bank’s last move. Source these from a live central bank rates table on the day of publication they change frequently and should not be reproduced from memory.
Chart 2 — The easing cycle and the stop. A step line showing India’s repo rate from February 2025 to August 2026: 125bps of cuts, then four flat readings. Data: verified above.
Chart 3 — The inflation path against target. A line chart of the RBI’s inflation projection peaking at 5.9% in Q3 FY27, with the 4% target and the 2–6% band as reference lines. Data: verified above.
Chart 4 — The transmission gap. A paired bar chart: loan rates –91bps against deposit rates –51bps, with the 40bps gap annotated. Data: verified above.
Chart 5 — Growth versus inflation. A dual-axis chart showing the FY2026 growth forecast revised up to 6.7% while the inflation forecast rises — the divergence that defines the RBI’s position. Data: verified above.
Expert Analysis
The RBI’s position is coherent, and it depends on one judgement holding.
The judgement is that the coming inflation is a supply shock rather than a demand problem. Oil prices driven by the West Asia conflict, disrupted supply chains and an erratic monsoon are all things interest rates cannot fix. Raising rates to counter imported inflation would slow an economy the RBI has just upgraded to 6.7% growth, without touching the cause.
The risk is that supply-driven inflation feeds into expectations and then into wages and core prices. Chakraborty’s 4.5% core threshold is where that judgement would be tested.
The transmission data suggests the pause was overdue on a different measure. With loan rates down 91bps against deposits down 51bps, bank margins are compressing regardless of what the RBI does next. Further cuts would have widened that gap.
On the outlier framing: what distinguishes the RBI is not the level of its rate but the combination an aggressive easing cycle stopped cleanly, a neutral stance held through rising inflation projections, and a growth forecast revised upward. That is a central bank that thinks it has already done what it needed to.
The next test is 7 October, and the variable to watch is core inflation rather than the headline.
Conclusion
The RBI has taken a position that requires conviction: inflation is heading to 5.9%, growth is being revised upward, and the policy rate is not moving in either direction.
That works if the coming price rises are genuinely imported oil, supply chains, monsoon and burn out without embedding in core inflation and wages.
The number that decides it is not 5.9%. It is whether core inflation sustains above 4.5%, and the next reading that matters comes before the October meeting.
Frequently Asked Questions
What did the RBI decide in August 2026?
The Monetary Policy Committee unanimously kept the repo rate at 5.25% on 5 August, retaining a neutral stance. It was the fourth consecutive hold since February 2026, following the last cut in December 2025.
Why is the RBI not raising rates despite higher inflation?
Because the expected rise is attributed to external factors the West Asia crisis, higher market prices and supply chain disruptions that monetary policy cannot address. Core inflation remains within the RBI’s comfort zone.
What is the RBI’s inflation forecast?
Inflation is expected to peak at 5.9% in the third quarter of FY27. That is above the 4% target but within the 2–6% tolerance band the RBI operates against.
How much has the RBI cut rates in total?
A cumulative 125 basis points between February 2025 and June 2026. The final cut was 25 basis points in December 2025, taking the repo rate to its current 5.25%.
Why are bank margins under pressure?
Outstanding loan rates have fallen 91 basis points while outstanding deposit rates have fallen only 51 basis points. Banks’ income from existing loans is declining faster than their deposit costs.
Will my EMI change?
Not immediately. Borrowers with floating-rate loans linked to the External Benchmark Lending Rate see no change from this decision. Fixed deposit yields are also expected to remain steady.
What would make the RBI raise rates?
Citi’s chief India economist Samiran Chakraborty has said a hike is unlikely in 2026 unless core inflation sustains above 4.5%. Headline inflation alone is not expected to trigger tightening.
When is the next RBI policy meeting?
5 to 7 October 2026. The Monetary Policy Committee meets bi-monthly, and the August meeting ran from 3 to 5 August.
