In its bi-monthly review, the Reserve Bank of India (RBI) on Wednesday held the repo rate at 5.5%, with all six members of the Monetary Policy Committee (MPC) voting unanimously to pause yet again. The central bank also reaffirmed a neutral policy stance—signaling that it remains open to either easing or tightening depending on how inflation and growth evolve.
This decision marks the second consecutive meeting where rates were kept steady following earlier cuts totaling 100 basis points in 2025.
The Monetary Policy Committee (MPC) sharply reduced its forecast for CPI inflation in FY26 to 2.6%, down from its previous estimate of 3.1%.
The downward revision reflects a moderation in food prices, favorable monsoon and supply trends, and the impact of the recently rationalized GST structure.
Quarterly projections now estimate inflation at 1.8% in Q2 and Q3, 4.0% in Q4, and 4.5% in Q1 FY27.
On the growth front, the RBI lifted its FY26 real GDP forecast to 6.8%, from 6.5% earlier.
The stronger outlook is supported by robust Q1 performance (7.8% annualised growth) and renewed consumption, investment, and rural demand.
Because the repo rate is unchanged, external benchmark lending rates (EBLRs) pegged directly to the repo won’t change, meaning many borrowers will see no adjustments to their EMIs or interest payments. Deposit rates are also expected to remain steady.
However, for loans tied to MCLR (Marginal Cost of Funds–based Lending Rate), banks may still adjust rates slightly, depending on liquidity, funding costs, and credit demand.
The MPC underscored that inflation has turned “benign” and moderated more than anticipated. As Governor Sanjay Malhotra said, the balance between growth and inflation expectations has shifted since the August policy.
Moreover, structural reforms—such as the shift to a two-slab GST system (5% and 18%)—are expected to ease inflationary pressures while supporting consumption.
India’s Q1 GDP jump to 7.8% also gives policymakers room to pause and gauge the effects of earlier measures without prematurely moving rates.
The RBI’s decision comes amid mounting uncertainties globally. Trade disputes—particularly with the U.S.—and the imposition of steep tariffs could hurt India’s export sector.
Analysts note that the fall in inflation and supportive global cues (e.g., rate cuts by the U.S. Federal Reserve) may leave room for a rate cut by December if growth softens.
Still, a sharp rupee depreciation or upward shocks to commodity prices may constrain monetary easing.
The RBI’s decision to hold the repo rate at 5.5%, maintain a neutral stance, slash inflation expectations to 2.6%, and upgrade growth forecasts to 6.8% reflects a strategic pause aimed at preserving flexibility.
The central bank is leaning on a favorable inflation backdrop, structural reforms like GST rationalisation, and strong domestic demand to navigate global uncertainties. For borrowers, the status quo offers some relief in terms of stable EMIs and lending rates. However, banks may still tweak MCLR-linked products.
With the external environment remaining volatile, the RBI is positioning itself to act decisively—either to ease further or tighten if risks materialize.