The Reserve Bank of India (RBI) announced on Thursday that it has kept the policy repo rate unchanged at 5.25% following its first Monetary Policy Committee (MPC) meeting of 2026. The central bank also signaled a neutral stance, indicating interest rates are likely to remain steady for an extended period.
RBI Governor Sanjay Malhotra stated that interest rates are expected to stay low for a prolonged period as domestic growth remains resilient and inflation stays within manageable levels. The MPC voted unanimously to retain the current rate, citing a supportive economic outlook driven by recent trade agreements, rising investments in technology, and ongoing fiscal stimulus measures.
Malhotra emphasized that after a comprehensive review of macroeconomic conditions, the current policy rate remains appropriate. “The committee has decided to continue with the existing rate and retain the neutral stance,” he said. However, one MPC member, Ram Singh, preferred shifting from a neutral to an accommodative stance, but the majority preferred to hold steady.
Growth and Inflation Outlook
The RBI revised its growth and inflation forecasts for the first half of FY27 upwards, reflecting stronger-than-expected domestic demand. Full-year projections will be released later this month after adjustments for base-year changes. Malhotra highlighted that rural demand, private consumption, and urban spending—particularly following GST rationalization—are expected to support economic activity.
Investment is also set to benefit from favorable financial conditions and increased government infrastructure spending. Trade agreements like the India–EU free trade deal and potential India–US agreements are expected to bolster exports over the medium term. Still, geopolitical tensions and international market volatility pose risks to the outlook.
On inflation, Malhotra attributed recent increases largely to base effects and higher precious metal prices. Excluding these metals, underlying inflation remains subdued and within the RBI’s tolerance band. The recent inflation uptick is primarily due to a rise in precious metal prices, which account for 60–70 basis points of the increase.
Monetary Policy Stance and Transmission
Malhotra highlighted the steady transmission of rate cuts, with the weighted average lending rate on new rupee loans declining by 105 basis points from February to December 2025. Similarly, the domestic term deposit rate on new deposits fell by 95 basis points over the same period.
The RBI reaffirmed its commitment to proactive liquidity management, ensuring adequate liquidity to support credit demand and facilitate smooth rate transmission. Malhotra noted that liquidity operations would be pre-emptive, factoring in government balances, currency in circulation, and foreign exchange interventions.
Addressing concerns over the government’s large borrowing program, Malhotra assured that conservative estimates of small savings collections and the use of treasury bills will aid in managing yields and maintaining stability.
Market Reactions and Expert Views
Economists largely supported the RBI’s decision to hold rates steady. Kotak Bank’s Chief Economist Upasna Bhardwaj noted, “There is limited scope for further easing on the repo rate, as the focus is shifting toward ensuring liquidity stability.” Similarly, Garima Kapoor of Elara Capital added, “A shock to growth or inflation could reopen the case for a rate cut, but for now, a prolonged pause seems likely.”
Overall, the RBI’s stance indicates a cautious approach, prioritizing economic stability and liquidity management amid steady growth and moderate inflation. The central bank’s decision reflects confidence in the ongoing recovery, while remaining alert to external risks and market developments.
