RBI holds repo rate at 5.25%, trims inflation view and lifts growth forecast

The Reserve Bank of India kept its benchmark repo rate unchanged at 5.25% on Aug. 5, retained a neutral stance, cut its average inflation forecast for the financial year to 5% from 5.1% and raised its GDP growth view to 6.7% from 6.6%, prompting economists to push back expectations for the first rate increase. The RBI also lowered its core inflation forecast to 4.3% from 4.7% even as June retail inflation rose to 4.38%, above the 4% medium-term target for the first time in 17 months. Overnight indexed swap rates fell after the policy review and now imply about 50 basis points of hikes over the next year, down from as much as 125 basis points at the peak of the Iran crisis; MUFG Bank, Goldman Sachs, HDFC Bank and ICICI Bank all delayed their expected timing for the first move. Indian equities extended gains as easing Middle East tensions, a stronger-than-expected earnings season and the RBI's steady policy stance supported risk appetite, with the BSE Sensex closing about 0.5% higher at 78,954.8 on Thursday, its highest since April 21 and a second straight gain. Reliance Industries climbed 3.4% on premium block deals, State Bank of India rose 3% ahead of Friday's Q1 results, while Power Grid fell roughly 4% after reporting a 0.9% decline in Q1 FY27 consolidated net profit despite higher total income and continued transmission network expansion.