RBI Latest Monetary Policy Review – Repo Rate & Inflation Outlook
The Reserve Bank of India (RBI) plays a critical role in ensuring financial stability and economic growth through its monetary policy decisions. On August 2025, the RBI released its latest Monetary Policy Review, which has significant implications for banking exams like IBPS, SBI, and RBI Grade B. This article provides a detailed analysis of the repo rate decision, inflation outlook, and its impact on the economy.
RBI Monetary Policy Committee (MPC): Key Highlights
The Monetary Policy Committee (MPC), chaired by the RBI Governor, meets every two months to decide the policy rates. These decisions are aimed at achieving the inflation target while supporting economic growth.
In the August 2025 policy review, the MPC decided to:
- Keep the repo rate unchanged at 6.50% for the fifth consecutive meeting.
- Maintain the stance of withdrawal of accommodation to ensure inflation remains under control.
- Continue monitoring global economic conditions and domestic demand trends.
What is the Repo Rate and Why is it Important?
The repo rate is the rate at which RBI lends short-term funds to commercial banks against government securities. When the repo rate is increased, borrowing becomes costlier, reducing liquidity in the market and controlling inflation. Conversely, a reduction in repo rate boosts liquidity and promotes growth.
For the current policy cycle, the RBI has kept the repo rate unchanged at 6.50%, signaling a cautious approach to balance inflation control with growth needs.
Inflation Outlook for 2025
One of the main concerns for the RBI is consumer price inflation (CPI). According to the latest projections:
- Inflation for FY 2025 is projected at 4.5%, within the RBI’s tolerance band of 4% ± 2%.
- Recent spikes in food inflation due to irregular monsoon and global commodity price fluctuations have kept RBI cautious.
- Core inflation (excluding food and fuel) has shown signs of moderation, indicating some relief.
The RBI has emphasized that inflation risks remain due to volatile crude oil prices, geopolitical tensions, and supply chain disruptions.
Impact on the Indian Economy
The decision to maintain the repo rate aims to strike a balance between price stability and economic recovery. Key impacts include:
- Lending Rates: Banks are likely to keep their lending and deposit rates stable, which will influence home loans, car loans, and personal loans.
- Credit Growth: Stable rates encourage steady credit growth, supporting economic activities.
- Market Sentiment: Investors view the RBI’s decision as a sign of controlled inflation and stable financial conditions.
What This Means for Banking Aspirants
For candidates preparing for IBPS PO, SBI PO, RBI Grade B, and other banking exams, understanding monetary policy is crucial. Questions related to repo rate, reverse repo rate, inflation trends, and MPC decisions frequently appear in General Awareness and Economic & Financial Awareness sections.
Key points to remember for the exam:
- Repo Rate (August 2025): 6.50%
- Reverse Repo Rate: 3.35% (unchanged)
- Inflation Projection: 4.5% for FY 2025
- Stance: Withdrawal of accommodation
Conclusion
The RBI’s latest monetary policy highlights its cautious yet balanced approach to managing inflation while sustaining economic growth. For banking aspirants, keeping track of these updates is essential as they form an integral part of current affairs and banking awareness.
