- The Reserve Bank of India kept the policy repo rate unchanged at 5.25%
- The decision aligns with expectations of most market observers
- The pause follows a 125-basis-point rate cut since last February
The Reserve Bank of India's Monetary Policy Committee (MPC) has decided to keep the policy repo rate unchanged at 5.25%, in line with the expectations of the vast majority of market observers. By opting for a pause, the central bank signalled a period of consolidation following a cumulative 125-basis-point reduction since last February.
The decision was largely anticipated, with 34 out of 39 economists polled by Bloomberg correctly predicting the hold.
In his MPC address, RBI governor Sanjay Malhotra stated that the Indian economy remains in a good spot amid global uncertainty, with underlying data showing strong growth momentum. He stated that this momentum should sustain for a longer period.
RBI's Inflation And GDP Projections
The RBI MPC has improved its CPI Inflation projection to 4% in Q1FY27 from 3.9% earlier, while the projection for Q2FY27 has been upgraded from 4% to 4.2%. Meanwhile, the central bank has pegged the GDP growth projection in Q1FY27 at 6.9% versus 6.7% earlier. Similarly, GDP growth projections for Q2FY27 have been upgraded from 6.8% to 7%.
While growth projections are climbing, the RBI remains vigilant on prices. The committee noted that while December Core Inflation remained stable at 2.6% and is expected to stay range-bound, headline inflation projections have been adjusted slightly upward.
Source: Reserve Bank Of India
External Sector & Liquidity
The Governor highlighted India's continued status as an attractive destination for Foreign Direct Investment (FDI). This is bolstered by a robust external cushion, with India's Foreign Exchange Reserves standing at $723.8 billion.
Governor Malhotra emphasised that system-level financial stability metrics remain robust, adding that the financial stability of Non-Banking Financial Companies (NBFCs) remains sound. He also noted that G-Sec yields have continued to harden, while the Governor stated that liquidity management will be pre-emptive going forward.
Why Did RBI Hold GDP And CPI Inflation Projections For FY27?
The RBI deferred full FY27 projections until MoSPI updates the base years later this month (GDP to 2022–23; CPI to 2024).
The new CPI series, launching Feb 12, modernises the inflation basket by increasing items from 299 to 358 and adding e-commerce/OTT services. Notably, the Food & Beverage weight drops (45.9% to 36.8%), while housing and transport rise.
Why change the base year? Economic structures evolve. The current 2011–12/2012 bases are outdated. Updating them ensures data reflects modern consumption patterns and production reality, providing a more accurate benchmark for real growth and inflation.
READ MORE: RBI Holds GDP And CPI Inflation Projections For FY27 — Here's Why
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