The Reserve Bank of India's Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, kept the benchmark repo rate unchanged at 5.25% in its February 2026 policy review, maintaining a neutral stance, even as it signalled confidence in the economy's growth momentum and resilience. The announcement came at the conclusion of the MPC's three‑day meeting held from February 4 to 6, with the Governor highlighting that domestic economic conditions remain robust, inflation pressures broadly contained, and external buffers strong enough to withstand global volatility.
The pause in policy rates comes after a cumulative 125 basis‑point reduction since February 2025, a cycle aimed at supporting economic recovery amid evolving global and domestic conditions. With inflation still hovering comfortably below the midpoint of the target range, the central bank has opted for continuity over action, choosing to watch for clearer trends in the months ahead.
Policy Rates and Stance Unchanged
Announcing the decision, Governor Malhotra reiterated that the MPC has voted unanimously to maintain the repo rate at 5.25%, alongside leaving the MSF and bank rate steady at 5.50%, thus preserving policy continuity. The neutral stance, he said, reflects a balanced assessment of inflation and growth dynamics, allowing the RBI flexibility to respond swiftly should macroeconomic conditions shift.
Markets had widely anticipated the pause, especially with prior rate cuts still transmitting through the financial system and global monetary conditions remaining fluid. The decision aligns closely with economist forecasts, who expected the RBI to favour liquidity management and stability over further easing.
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Inflation: Marginal Upward Revisions, Core Remains Steady
The RBI revised its near‑term inflation projections slightly upward, with Q1 FY27 CPI inflation now seen at 4% compared to 3.9% earlier, and Q2 FY27 at 4.2%, up from 4%. These adjustments reflect evolving price dynamics despite overall benign conditions. For the current fiscal, FY26 CPI inflation is projected at 2.1%, with Q4 FY26 at 3.2%, indicating that inflation remains well within the comfort band.
Governor Malhotra also noted that core inflation remains stable at 2.6%, and is expected to stay range‑bound in the near term. Importantly, the RBI held back on issuing its full‑year FY27 inflation forecast, saying it will do so only after the release of the new GDP‑linked CPI series later this February.
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Growth Outlook: Momentum Remains Strong
Driven by resilient domestic demand, robust corporate performance, and supportive financial conditions, the central bank maintained a strong growth outlook. The RBI expects FY26 real GDP growth at 7.4%, while FY26 GVA growth is seen at 7.3%. Looking ahead to FY27, the central bank revised Q1 GDP growth to 6.9% (from 6.7% earlier) and Q2 GDP growth to 7% (from 6.8%).
External Resilience: India's Forex Buffers Remain Strong
India's external sector continues to strengthen, with foreign exchange reserves at $723.8 billion as of January. Governor Malhotra affirmed that the RBI remains confident in meeting all external financing requirements, supported by steady capital flows and India's rising attractiveness as an FDI destination. The central bank also reiterated its proactive stance on liquidity management amid evolving global financial conditions.
Sectoral Boosts: Support for MSMEs & NBFCs
In a move aimed at improving credit access and easing compliance burdens, the RBI announced a series of sector‑focused measures:
- Collateral‑free loans for MSMEs doubled to Rs 20 lakh from the current Rs 10 lakh, providing significant relief and liquidity support to small businesses.
- Banks will now be permitted to lend directly to REITs, extending the lending framework already available for InvITs.
- NBFCs with asset sizes below Rs 1 crore will be exempt from mandatory RBI registration, helping reduce regulatory burdens on very small finance companies.
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