RBI keeps rates unchanged, plans polymer currency notes from next financial year

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Mumbai, August 5 The Reserve Bank of India (RBI) has left its key policy interest rate unchanged for a fourth consecutive monetary policy meeting, saying it wants more clarity on inflation risks arising from higher global energy prices and ongoing geopolitical tensions before making any move. Announcing the Monetary Policy Committee’s (MPC) decision on Wednesday, RBI Governor Sanjay Malhotra said the policy repo rate would remain at 5.25%. The Standing Deposit Facility (SDF) rate stays at 5.00%, while the Marginal Standing Facility (MSF) rate and the Bank Rate remain at 5.50%. The MPC also retained its neutral policy stance, signalling flexibility to respond to future economic developments.

The central bank said the decision comes against a backdrop of heightened global uncertainty. It cited the conflict in West Asia, disruptions to trade routes and supply chains, volatile crude oil prices and fresh US tariffs as factors clouding the global economic outlook. According to the RBI, these developments have increased uncertainty around both inflation and economic growth.

Governor Malhotra said inflation has risen above the RBI’s target, largely because of higher food and fuel prices. However, he stressed that underlying price pressures remain contained, with core inflation continuing to be moderate. The RBI expects headline inflation to rise further and peak during the third quarter of the 2026-27 financial year before easing later.

Despite external challenges, the central bank said India’s economy continues to be supported by resilient domestic demand, steady manufacturing and services activity, and robust exports, helping the country retain its position among the world’s fastest-growing major economies. However, it cautioned that growth is likely to moderate during the current financial year, with uncertainties surrounding the south-west monsoon, the possibility of El Niño, geopolitical tensions and global trade policies continuing to weigh on the outlook.

Explaining the policy decision, Malhotra said the central bank preferred to wait for a clearer picture of inflation trends before considering any change in interest rates.

At the post-policy press conference, the RBI Governor also announced that the central bank plans to introduce polymer currency notes at the beginning of the next financial year. He said polymer notes have remained in circulation for more than three decades in several countries and are expected to be particularly useful for lower-denomination notes because they are more durable and have a longer lifespan than conventional paper currency.

The RBI said it would continue to closely monitor domestic and global economic developments while remaining committed to keeping inflation aligned with its target.