RBI repo rate stability took center stage on Friday as the Reserve Bank of India opted to hold its benchmark interest rate at 5.25%, citing benign inflation and improving growth prospects following major trade agreements with the United States and the European Union. The decision underscores the central bank’s confidence in the resilience of Asia’s third-largest economy, even as global uncertainties persist.
The RBI’s six-member Monetary Policy Committee (MPC), which met from February 4 to 6, voted unanimously to keep the repo rate unchanged and maintained its neutral policy stance. Governor Sanjay Malhotra announced the decision during a televised address, aligning with market expectations amid signs of steady growth and controlled price pressures.
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MPC Decision in Line With Expectations
A majority of the 39 economists had anticipated no change in the policy rate. With India’s GDP growth projected to exceed 7% for a second consecutive year in FY27 and the rupee posting its strongest rally in seven years, analysts believe the current rate-cut cycle may have run its course.
The central bank has already reduced rates by a cumulative 125 basis points since February 2025, marking its most aggressive easing cycle since 2019. The most recent cut of 25 basis points was delivered at the December policy meeting.
Growth and Inflation Outlook Revised
The MPC marginally upgraded its growth outlook while slightly lowering its inflation forecast for the first quarter of FY27. According to the RBI, GDP growth is now seen at 6.9% in Q1 FY27, compared with an earlier estimate of 6.7%, while inflation is projected at 3.9%, down from 4.0%.
The RBI also noted that new consumer price index (CPI) and GDP series data are expected to be released later in February, which will provide a clearer picture of underlying economic trends.
Trade Deals Strengthen Economic Prospects
Governor Malhotra highlighted the positive impact of recent trade agreements, calling them supportive of India’s medium-term outlook. India has finalized a comprehensive trade deal with the European Union and reached an agreement with the United States to reduce tariffs on its exports to 18% from 50%.
“The successful completion of trade deals augur well for the economic outlook,” Malhotra said, pointing to stronger external demand and improved investor confidence.
Market Reaction Mixed
Following the policy announcement, the rupee held on to modest gains against the US dollar. However, government bonds extended losses as the RBI refrained from introducing new liquidity measures. The benchmark 10-year bond yield rose as much as six basis points to 6.70%.
Malhotra said full-year growth and inflation projections will be provided in April, once the government publishes revised data series.
Analysts See Prolonged Policy Pause
Market participants interpreted the RBI’s messaging as broadly supportive of growth while remaining cautious on inflation. Geojit Investments Chief Investment Strategist V.K. Vijayakumar noted that high-frequency indicators point to sustained momentum in FY27, while recent gains in bank credit growth could boost profitability in the banking sector.
Gaura Sen Gupta, India economist at IDFC First Bank Ltd., said the central bank appears comfortable with the current policy setting. “The RBI tone shows comfort on current policy setting with growth strengthening and inflation remaining benign,” she said, adding that the MPC may remain on a prolonged pause.