RBI Maintains Status Quo on Repo Rate at 5.25% Amid Global Uncertainties
The Reserve Bank of India (RBI) on Thursday decided to keep the policy repo rate unchanged at 5.25%, with the Monetary Policy Committee (MPC) voting unanimously to maintain the current stance. This decision reflects a cautious approach as the central bank navigates external challenges while acknowledging supportive domestic conditions.
Policy Rates and Stance Remain Unaltered
Following the MPC meeting, the standing deposit facility rate stays at 5%, while the marginal standing facility rate and the bank rate remain at 5.5%. The committee also retained its neutral stance, indicating a balanced view on future monetary policy adjustments.
RBI Governor Sanjay Malhotra explained that external headwinds have intensified since the last policy review, driven by geopolitical frictions and rising trade tensions. However, he emphasized that domestic macroeconomic fundamentals continue to provide a solid foundation for growth. "The MPC was of the view that the current policy rate is appropriate and accordingly voted to continue with the existing policy rate," he stated.
Revised Growth Projections Signal Economic Resilience
The central bank modestly revised upward its near-term growth forecasts, underscoring confidence in India's economic trajectory. Real GDP growth for 2025–26 remains steady at 7.4%. For 2026–27, growth projections have been adjusted as follows:
- April–June quarter: Revised up by 20 basis points to 6.9% from the earlier estimate of 6.7%.
- July–September quarter: Increased by 20 basis points to 7%.
The RBI deferred its full-year growth forecast for 2026–27 to the April policy review, citing the upcoming release of a new GDP series. Governor Malhotra highlighted that the Indian economy is on a "steadily improving trajectory", bolstered by private consumption and fixed investment despite a challenging global environment. He noted that high capacity utilisation, improving corporate performance, and continued emphasis on infrastructure spending should further support investment activity.
Inflation Forecasts Adjusted Upward Due to External Factors
Inflation projections for the first half of the next financial year have been nudged higher. Consumer Price Index (CPI) inflation for 2025–26 is now projected at 2.1%, with inflation in the March quarter pegged at 3.2%. For 2026–27, revisions include:
- Q1 inflation revised up by 10 basis points to 4%.
- Q2 inflation raised by 20 basis points to 4.2%.
The governor attributed the upward revision largely to higher prices of precious metals, while noting that underlying inflation pressures remain muted. However, he cautioned that geopolitical uncertainty, volatility in energy prices, and adverse weather events pose upside risks to inflation. He also flagged unfavourable base effects from the sharp decline in prices in Q4 of 2024–25, which are expected to push up year-on-year inflation in the final quarter of the current year.
External Sector and Trade Dynamics
On the external front, the RBI reported that India's merchandise exports grew 1.9% year-on-year in Q3 of 2025–26, while imports rose 7.9%, leading to a widening trade deficit. Governor Malhotra expressed confidence that robust services exports and inward remittances should keep the current account deficit moderate and sustainable.
He added that the recently concluded India–EU free trade agreement and a prospective India–US trade deal, along with other trade pacts, are expected to support exports over the medium term and integrate India more deeply into global value chains.
Capital Flows and Foreign Exchange Reserves
Capital flows remained mixed, with foreign portfolio investors recording net outflows of $5.8 billion till February 3, even as foreign direct investment inflows stayed robust. India's foreign exchange reserves stood at $723.8 billion as on January 30, providing import cover of over 11 months, which offers a buffer against external shocks.
Liquidity Measures and Future Outlook
Regarding liquidity, the governor stated that the RBI had undertaken further durable liquidity-augmenting measures in January and February in response to the cumulative 125 basis points cut in the repo rate so far. He assured that the central bank would remain proactive to ensure adequate liquidity and smooth transmission of monetary policy, supporting economic stability and growth.
