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Resisting calls for a 25 basis point cut, the Monetary Policy Committee (MPC) of the Reserve Bank of India chose to hold the repo rate at 5.5%. Following earlier 2025 cuts of 100 basis points that reduced rates from 6.5%. This decision on the status quo highlights a careful approach to monetary easing. Simultaneously, the RBI revised its GDP growth projection for FY26 to 6.8%, up from the previously 6.5% estimate, suggesting optimism about accelerating economic momentum, notwithstanding worldwide headwinds, including possible changes in US trade policy.
The rate hold matches a drop in the inflation forecast, estimated at 2.8% for the year, down from 3.1% and well below the 4% goal, with underlying inflation still modest. This gives the central bank room to accommodate but emphasizes ongoing difficulties in policy implementation. Though ₹5.5 lakh crore in liquidity was infused and ₹2.5 lakh crore in CRR reductions made, borrowing costs—especially for government organizations—remain high, suggesting that past easing steps have not been fully passed through.
The RBI follows a wait-and-see approach, balancing rate stability with an adjusted growth prediction, and lets past reductions seep throughout the economy. External variables, including the US Federal Reserve's recent actions, a steady rupee at about 88.80 against the dollar, and weaker commodity prices, affect demand. Moreover, global deflationary tendencies further bolster this positioning. Early under Governor Sanjay Malhotra's leadership, this strategy represents a careful mix of money support and development permanence in a dynamic worldwide environment.
