RBI repo rate held at 5.25% as bankers welcome foreign capital measures to aid rupee

Indian banks supported the Reserve Bank of India’s decision on Friday to keep the repo rate unchanged at 5.25 per cent. Lenders said the neutral stance showed caution amid the West Asia conflict. Bankers also pointed to higher energy prices and supply risks. Many said the move offered stability for borrowers while the central bank tracked inflation pressures.

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RBI Governor Sanjay Malhotra said the Monetary Policy Committee took a unanimous decision. The panel kept the short-term lending rate steady and maintained a neutral stance. The decision came during the second bi-monthly monetary policy for the current fiscal. The central bank said it weighed energy costs and supply disruptions linked to the region.

Repo rate decision and foreign capital measures

Bankers also welcomed steps meant to draw more foreign capital and widen Indian financial markets. These included expanding government securities under the Fully Accessible Route (FAR). The RBI also announced relaxations for foreign portfolio investments. Lenders said the support for foreign currency inflows could help liquidity and add support for the rupee.

CS Setty, Chairman, State Bank of India & Indian Banks Association IBA, said, "The measures announced to attract foreign capital through FCNR B deposits, government securities, overseas borrowings, and equity investments are timely and comprehensive. These steps should help enhance capital inflows, deepen bond markets, improve liquidity and provide support to the rupee,\" Setty said.

Among foreign banks, PD Singh, CEO, India and South Asia, Standard Chartered Bank, focused on the deposit plan. Singh said the scheme for 3-5-year retail foreign currency term deposits could lift foreign currency inflows. Singh added it may help banks strengthen deposit growth. Singh also said it could support client funding needs in a tighter global environment.

Repo rate outlook amid West Asia tensions

The RBI’s policy call followed a three-month-long conflict in West Asia. The conflict disrupted energy supplies and pushed crude oil prices higher. The rise created fiscal strain and inflation risks for import-dependent economies, including India. Bankers said keeping rates steady offered predictability as markets reacted to supply shocks.

Ajay Kumar Srivastava, managing director and chief executive officer of Indian Overseas Bank, said growth stayed firm. Srivastava noted growth was projected at 6.6 per cent for FY27. Srivastava said a careful approach was still needed due to West Asia risks. Srivastava said stable rates also aided households and businesses.

Karur Vysya Bank managing director and CEO Ramesh Babu said the pause kept policy conditions steady. Babu said it also left space to respond if global trends changed. Babu added the decision could help manage inflation and keep borrowing costs stable. Babu said it could shield MSMEs and exporters from sudden credit shocks.

Singh said the regulator appeared to be taking a cautious approach while the situation developed. \"The MPC decision to maintain status quo on policy rates comes from a prudent stance by the regulator as it would like to wait and watch how the evolving West Asia scenario plays out in the coming time,\" Singh said.

Overall, lenders said the RBI balanced inflation concerns with the need for steady growth. Banks highlighted that the neutral stance preserved room for future action. They also backed the foreign capital steps, including FAR expansion and FCNR B measures. Bankers said these moves could improve market depth, liquidity, and rupee stability.

With inputs from PTI