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Bank stocks slide as RBI holds repo rate at 5.5%

06-Aug-25 11:11 Hrs IST

The committee maintained its stance amid global uncertainties and a resilient domestic economy, choosing to allow more time for the transmission of its earlier rate cuts.

Accordingly, the standing deposit facility (SDF) rate remains at 5.25%, while the marginal standing facility (MSF) rate and the Bank Rate are unchanged at 5.75%.

The RBI reiterated its commitment to achieving the medium-term inflation target of 4%, within a tolerance band of +/- 2%, while continuing to support growth. It noted that the global environment remains uncertain, with muted growth and uneven disinflation, although financial volatility has eased somewhat.

On the domestic front, growth remains stable. Rural consumption and robust government capital spending are supporting demand, while a normal monsoon is benefiting agriculture. Services and construction activity remain strong, although industrial performance is uneven, weighed down by electricity and mining.

The central bank retained its real GDP growth forecast for FY26 at 6.5%, with quarterly projections of 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. For Q1 FY27, growth is projected at 6.6%, with risks broadly balanced.

On inflation, the RBI lowered its CPI forecast for FY26 to 3.1%, down from the earlier 3.7%. Quarterly inflation is now seen at 2.1% in Q2, 3.1% in Q3, and 4.4% in Q4. CPI inflation for Q1 FY27 is projected at 4.9%. The central bank noted that average inflation this year is expected to remain well below the target, largely due to easing food prices, although inflation may edge above the 4% mark from Q4 onwards.

The RBI highlighted that the full impact of the 100 basis points of rate cuts since February 2025 is still unfolding. Given the current macroeconomic conditions and external risks, the MPC decided to maintain the existing rate and continue with a neutral stance. It also signalled continued data monitoring to guide future policy moves.

The minutes of the meeting will be released on August 20, while the next MPC meeting is scheduled from September 29 to October 1.

Following the policy announcement, the Nifty Bank index declined 0.12% to 55,295.90, while the benchmark Nifty 50 slipped 0.32% to 24,571.20.

In the banking space, IndusInd Bank was the biggest loser, falling 1.83%. AU Small Finance Bank declined 1.45%, and IDFC First Bank dropped 1.3%. Canara Bank shed 0.56%, while Federal Bank was down 0.48%. Punjab National Bank dipped 0.32%, Bank of Baroda slipped 0.27%, and Axis Bank edged 0.16% lower. HDFC Bank lost 0.14%, and State Bank of India was marginally down by 0.11%.

In contrast, ICICI Bank rose 0.17% and Kotak Mahindra Bank gained 0.66%.