The Reserve Bank of India (RBI) will keep its key interest rate unchanged at 5.25% in August and for the remainder of 2026.

This decision marks a shift from a May 2026 Reuters poll, which had predicted an increase in rates for the upcoming quarter.

Inflation reached 4.38% in June, marking the first reading to exceed the RBI's 4% target since January 2025.

Governor Sanjay Malhotra stated that discussions regarding interest rate hikes are currently "premature."

During the August 3-5 meeting, 68 out of 72 economists (nearly 95%) expected the repo rate to remain at 5.25%, while only four predicted a 25-basis-point hike.

The RBI originally lowered the rate by 25 basis points to 5.25% in December 2025 and has maintained that level since then.

Market poll medians indicate that interest rates are likely to remain on hold until at least early 2027.

Chief economist at STCI Primary Dealer, Aditya Vyas, noted that the effects of the war have already begun to trickle down into inflation.

Various sectors are currently navigating the impacts of U.S. tariffs and consequences from the Middle East war.

Economists suggested that a rate hike is unlikely unless inflationary pressures become more persistent.

Kanika Pasricha, chief economic adviser at the Union Bank of India, cautioned that the RBI could consider hiking rates in the second half of the fiscal year if oil prices remain above $90 a barrel.

The rupee has depreciated by nearly 7% against the dollar over the course of the year.

Despite measures announced at the June policy meeting that drew nearly $20 billion in inflows, these actions failed to stop the slide of the rupee.

Economic growth is projected to slow from 7.7% last year to 6.6% during this fiscal year.

Apoorva Javadekar, chief economist at Muthoot Fincorp, noted the RBI would only consider hiking rates if inflation rose above 6% and remained at that level persistently.

Poll medians project inflation to average 4.8% this fiscal year—an increase from the 4.7% seen in the May Reuters survey, but still below the RBI's projection of 5.1%.