The Reserve Bank of India (RBI) has kept the key repo rate steady at 5.5%, following the conclusion of its three-day Monetary Policy Committee (MPC) meeting chaired by Governor Sanjay Malhotra. Along with holding the rate, the central bank maintained a neutral stance, signaling a cautious approach to balancing growth and inflation.
Governor Malhotra explained that after a detailed assessment of the evolving macroeconomic situation, the MPC unanimously voted to keep the repo rate unchanged. Consequently, the SDF rate remains at 5.25%, while the MSF and bank rates are steady at 5.75%. The decision reflects RBI’s intention to carefully monitor economic conditions before making further policy adjustments.
Inflation trends have been more benign than expected, prompting a downward revision of the headline CPI inflation forecast for FY26 to 2.6%, from 3.7% in June and 3.1% in August. This decline is largely attributed to falling food prices, favorable monsoon conditions, robust crop sowing, healthy reservoir levels, and government measures to manage supply chains, along with GST rate cuts. The RBI projects CPI inflation at 1.8% for Q2 and Q3, 4% for Q4, and 4.5% in the first quarter of the next financial year.
On the growth front, India’s real GDP for FY26 is projected at 6.8%, supported by strong domestic demand, recent GST reforms, favorable monsoon rains, and low inflation. Quarterly growth estimates are 7% in Q2, 6.4% in Q3, 6.2% in Q4, and 6.4% for Q1 of the next financial year. Governor Malhotra noted that while growth remains resilient, weak external demand and global trade uncertainties, including high tariffs and rupee volatility, could weigh on the economy in the latter half of the year.
The MPC highlighted that prior policy actions, including a front-loaded 100-basis-point rate cut and government reforms like revised income tax slabs and GST rationalisation, are still influencing the economy. The committee judged it prudent to await the full impact of these measures before considering further action, thereby maintaining a neutral stance.
External risks remain a concern, such as global trade tensions, tariffs, and currency fluctuations, which could impact exports and capital flows. Nevertheless, the RBI remains confident in India’s ability to absorb economic shocks, thanks to strong domestic demand, good harvests, and government expenditure.
According to Dr. Manoranjan Sharma, Chief Economist at Infomerics Ratings, the RBI’s decision demonstrates a forward-looking and prudent approach. By avoiding premature rate cuts, the central bank balances inflationary pressures with sustainable growth, retaining flexibility to respond to future economic developments while ensuring stability in the broader economy.
