At a time when global central banks are oscillating between inflation anxiety and growth fatigue, the Reserve Bank of India’s decision to hold the repo rate steady has invited predictable criticism. With the Indian rupee under pressure against the US dollar and global financial conditions tightening, the expectation in some quarters was that the RBI would either raise rates to defend the currency or signal an imminent shift. It did neither. Instead, it chose continuity — a decision that is being mistaken by critics as indecision, but which in reality reflects strategic monetary prudence. To understand the RBI’s reasoning, one must first discard the simplistic assumption that currency depreciation automatically warrants a rate hike. In today’s interconnected global economy, exchange rates are driven less by domestic interest rates alone and more by capital flows, geopolitical tensions, US monetary policy, and risk sentiment. The recent weakening of the rupee owes far more to global dollar strength and risk aversion than to any domestic macroeconomic imbalance. Reacting mechanically with a rate hike would have been both ineffective and counterproductive. More importantly, the domestic macroeconomic fundamentals remain resilient. India’s growth trajectory continues to outperform most major economies, powered by sustained public investment, recovering private capital expenditure, and robust consumption demand. Inflation, while not eliminated as a concern, remains broadly within the RBI’s tolerance band. In such a scenario, tightening monetary policy merely to send a signal to currency markets would risk undermining the very growth momentum that the RBI has carefully nurtured over the past two years. This is where the RBI’s decision intersects meaningfully with the Union Budget presented by Finance Minister Nirmala Sitharaman. While the Budget did not offer headline-grabbing populist announcements, it made a clear and deliberate statement of intent. By continuing to raise allocations for defence, infrastructure, and manufacturing, the government signalled its commitment to long-term capacity building rather than short-term political consumption. Defence spending is not merely a security imperative; it has increasingly become an economic one. Indigenous manufacturing, supply-chain development, and technology absorption now form a critical part of defence outlays. Similarly, infrastructure spending — roads, railways, ports, logistics — remains the backbone of India’s growth strategy, crowding in private investment and improving productivity. The manufacturing push, particularly under the broader self-reliance framework, aims to reduce import dependence while strengthening export competitiveness.
Against this fiscal backdrop, the RBI’s decision to maintain the status quo on interest rates appears less like hesitation and more like policy coordination without compromise. The central bank has clearly judged that the Budget’s growth-supportive stance does not warrant monetary tightening, nor does it demand premature easing. In other words, fiscal policy is doing the heavy lifting for growth, allowing monetary policy to remain steady and vigilant. Critics who argue that an unchanged repo rate risks fuelling inflation overlook a critical point: inflation today is not demand-led. Food prices remain vulnerable to supply shocks, and global energy markets continue to be volatile. These are not problems that interest rate adjustments can efficiently solve. On the contrary, aggressive rate moves could suppress credit flow to small businesses, housing, and manufacturing sectors that are essential to sustaining employment and income growth. Equally important is the RBI’s implicit message to markets: currency stability will be managed through multiple instruments, not blunt rate action. India’s foreign exchange reserves, liquidity management tools, and regulatory oversight provide the RBI with sufficient ammunition to smooth volatility without sacrificing domestic growth objectives. A central bank that panics at every bout of currency weakness risks losing credibility; one that demonstrates patience and consistency reinforces confidence. There is also a longer-term consideration at play. India has set itself ambitious economic growth targets, aspiring to remain the world’s fastest-growing major economy. This requires policy predictability. Frequent and reactive changes to interest rates create uncertainty for investors and borrowers alike. By holding the repo rate steady, the RBI is signalling that it values stability over theatrics, and data over noise. None of this suggests complacency. The RBI has made it clear that it remains watchful of inflationary risks, external shocks, and financial stability concerns. If conditions warrant action, it will act. But until then, maintaining the current rate structure allows the economy to absorb fiscal stimulus, sustain investment momentum, and consolidate recent GDP gains. Hence, the RBI’s decision to keep the repo rate unchanged should be seen for what it is: a conscious, calculated choice to protect growth without compromising price stability. It reflects confidence in India’s economic fundamentals, alignment — though not subservience — with fiscal policy, and a refusal to be stampeded by short-term currency fluctuations. In an era of global economic uncertainty, such steadiness is not a weakness. It is a strength.
