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The Reserve Bank of India (RBI) on Friday kept the benchmark repo rate unchanged at 5.25 percent, in line with market expectations. The decision was taken unanimously by the six-member Monetary Policy Committee (MPC) after two days of deliberations.

Announcing the policy decision, RBI Governor Sanjay Malhotra said the global economy continues to face significant headwinds and uncertainties.

“Global economy remains clouded amidst unprecedented challenges,” Malhotra said while outlining the MPC’s decisions. Despite the turbulent global environment, he expressed confidence in India’s ability to navigate external shocks.

“India remains confident to withstand shocks with minimum pain amid heightened global uncertainties,” the RBI governor said.

The decision to maintain the repo rate signals the central bank’s cautious approach as it balances inflation management with the need to support economic growth. Market participants had widely expected the RBI to keep rates unchanged amid evolving domestic and international economic conditions.

The repo rate is the interest rate at which the RBI lends money to commercial banks to meet their short-term funding requirements. It is one of the key monetary policy tools used by the central bank to influence liquidity and borrowing costs in the economy.

Effect of repo rate on borrowers, businesses

Changes in the repo rate have a direct impact on borrowers and businesses. An increase in the repo rate generally makes loans such as home loans, vehicle loans and business loans more expensive, as banks often pass on the higher borrowing costs to customers. Conversely, a reduction in the repo rate lowers borrowing costs, making loans cheaper and encouraging spending, investment and overall economic activity.