RBI keeps repo rate at 5.25%, maintains neutral stance; revises growth, inflation forecasts

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), under the leadership of Governor Sanjay Malhotra, concluded its bi-monthly meeting on February 6, 2026, by deciding to keep the key policy repo rate unchanged at 5.25%. This decision, which was unanimously voted by the six-member committee, signals a continuation of the 'neutral' monetary policy stance. This marks the first policy decision of the calendar year 2026 and follows a series of rate cuts that have cumulatively brought down the repo rate by 125 basis points since February 2025. The MPC's decision to maintain the status quo was anticipated by market analysts, who had focused on the central bank's approach to liquidity management and transmission of monetary policy in the face of elevated government borrowing and global economic uncertainties. The committee also revised its macroeconomic projections. The forecast for India's real Gross Domestic Product (GDP) growth for FY2025-26 was nudged up to 7.4% from the earlier estimate of 7.3%. This upward revision reflects the resilience of domestic demand and the positive momentum in the services sector, bolstered by factors such as the recent Union Budget 2026-2027 and the trade agreements with the US and the European Union. Growth forecasts for the first two quarters of FY2026-27 were also revised upwards, with projections of 6.9% for Q1 and 7.0% for Q2. On the inflation front, the MPC revised the Consumer Price Index (CPI) inflation projection for FY2025-26 upwards to 2.1% from 2.0% previously. The projection for Q4FY26 was increased to 3.2% from 2.9%, and for Q1FY27 to 4.0% from 3.9%, and for Q2FY27 to 4.2% from 4.0%. The RBI cited unfavourable base effects from price declines in Q4FY25 and the impact of rising precious metal prices as contributing factors. However, the central bank noted that underlying core inflation remains benign and that headline inflation is expected to remain within the RBI's tolerance band of 2-6%. A significant announcement made by Governor Malhotra was related to customer protection against fraudulent transactions. The RBI proposed a framework to compensate customers up to an amount of Rs 25,000 for losses incurred in small-value fraudulent transactions, provided the transaction is not malafide. This measure aims to enhance consumer confidence and security in the digital financial ecosystem, acknowledging that a substantial percentage of fraud cases involve amounts below Rs 55,000. Draft guidelines for this framework are expected to be released shortly. Other key policy rates were also maintained: the Standing Deposit Facility (SDF) rate at 5.00%, the Marginal Standing Facility (MSF) rate at 5.50%, and the Bank Rate at 5.50%. The MPC also reiterated its focus on managing systemic liquidity through various tools, including Variable Rate Repos (VRRs) and Open Market Operations (OMOs). The committee's future monetary policy decisions will be guided by evolving macroeconomic conditions and data from the new series of GDP and inflation statistics, set to be released soon. The next meeting of the MPC is scheduled for April 6-8, 2026. The RBI's overall assessment highlighted the Indian economy's strong footing, characterized by robust growth and contained inflation, despite global geopolitical tensions and financial market volatility. The recent trade deals are seen as further bolstering the outlook for the world's fastest-growing major economy.

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