RBI Holds Repo Rate at 5.25% Again: India’s Monetary Stance

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has unanimously decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25 per cent for the fifth consecutive time. This decision also means the standing deposit facility (SDF) rate remains at 5.00 per cent, and the marginal standing facility (MSF) rate along with the Bank Rate stay at 5.50 per cent.

The MPC further announced its commitment to continue with a neutral stance, signaling a cautious approach to future monetary policy adjustments. This consistency provides a stable environment for economic planning and market expectations.

Key Monetary Policy Rates Unchanged

• Policy Repo Rate: 5.25 per cent
• Standing Deposit Facility (SDF) Rate: 5.00 per cent
• Marginal Standing Facility (MSF) Rate: 5.50 per cent
• Bank Rate: 5.50 per cent

On the inflation front, the Consumer Price Index (CPI) inflation for 2026-27 is now projected at 5.0 per cent. This figure represents a slight reduction from the 5.1 per cent forecast made during the June monetary policy review, indicating some moderation in price pressures.

The central bank also provided a detailed quarterly breakdown for its inflation projections, with risks assessed as evenly balanced for the longer term. These specific forecasts offer a clearer picture of the expected inflationary trajectory.

Revised CPI Inflation Projections

• Q2:2026-27 CPI inflation: 4.7 per cent
• Q3:2026-27 CPI inflation: 5.9 per cent
• Q4:2026-27 CPI inflation: 5.5 per cent
• Q1:2027-28 CPI inflation: 5.3 per cent
• Core inflation for 2026-27: 4.3 per cent

The RBI noted that headline CPI inflation had edged above its target as anticipated, though the realised inflation for Q1 remained marginally below earlier projections. This reflects a limited pass-through of broader cost pressures to consumers.

The primary drivers of higher inflation continue to be fuel and food prices, with little evidence of widespread price pressures across other sectors. Core inflation, which excludes volatile precious metals, remains benign, suggesting underlying demand remains contained.

Looking ahead, headline inflation is expected to see a further rise in the near term, peaking in Q3:2026-27, predominantly influenced by food and fuel costs, before a projected moderation in subsequent periods.

India’s Real GDP Growth Projections Upgraded

In terms of economic growth, the real GDP growth for 2026-27 has been revised upwards to 6.7 per cent, an increase from the 6.6 per cent projected in the June monetary policy review. This positive adjustment reflects an improving economic outlook.

Quarterly GDP growth forecasts also show a robust trajectory, underscoring the resilience of the Indian economy. These projections signal sustained economic activity in the coming fiscal periods.

• Q1:2026-27 GDP growth: 7.0 per cent
• Q2:2026-27 GDP growth: 6.4 per cent
• Q3:2026-27 GDP growth: 6.5 per cent
• Q4:2026-27 GDP growth: 6.8 per cent
• Q1:2027-28 GDP growth: 7.3 per cent

The sustained investment activity is attributed to strong capacity utilisation, robust credit flow across various sectors, and the government’s ongoing focus on infrastructure development. These factors are crucial for maintaining growth momentum.

While services exports are expected to continue their strong performance, merchandise exports are anticipated to benefit from recent trade agreements and strategic diversification efforts, further bolstering the country’s economic prospects.