The decision was widely expected. In a Bloomberg poll, 34 out of 39 economists correctly predicted that the Reserve Bank of India (RBI) would keep rates unchanged. The RBI’s Monetary Policy Committee (MPC) has decided to hold the policy repo rate at 5.25%, matching market expectations. By choosing to pause, the central bank signalled a phase of consolidation after cutting rates by a total of 125 basis points since last February.
The decision was largely anticipated, with most analysts already pricing in a rate hold.
In his MPC address, RBI Governor Sanjay Malhotra said the Indian economy is in a strong position despite global uncertainty. He pointed to data showing solid growth momentum and added that this trend is likely to continue for some time.
RBI’s Inflation and GDP Projections
The RBI MPC has revised its CPI inflation forecast slightly higher. Inflation for Q1 FY27 is now projected at 4%, up from 3.9% earlier. The estimate for Q2 FY27 has been raised from 4% to 4.2%.
Growth projections have also improved. The RBI now expects GDP growth in Q1 FY27 at 6.9%, compared to the earlier estimate of 6.7%. For Q2 FY27, growth is projected at 7%, up from 6.8%.
While growth outlooks are improving, the RBI remains cautious on inflation. The committee noted that core inflation stood steady at 2.6% in December and is expected to remain within a narrow range. However, headline inflation projections have been adjusted slightly upward.
External Sector and Liquidity
Governor Malhotra highlighted that India continues to be an attractive destination for foreign direct investment. This confidence is supported by strong external buffers, with foreign exchange reserves at $723.8 billion.
He also said that overall financial stability indicators remain strong. The financial health of Non-Banking Financial Companies (NBFCs) is stable, and system-level risks are under control. The Governor noted that government bond yields have hardened and added that liquidity management will be proactive in the coming period.
Why Did RBI Hold GDP and CPI Projections for FY27?
The RBI has deferred full-year FY27 projections until the Ministry of Statistics and Programme Implementation (MoSPI) updates the base years later this month. The GDP base year will shift to 2022–23, while the CPI base year will move to 2024.
The new CPI series, scheduled to launch on February 12, updates the inflation basket to reflect changing consumption patterns. The number of items will increase from 299 to 358, with the inclusion of e-commerce and OTT services. The weight of food and beverages will decline from 45.9% to 36.8%, while housing and transport will carry higher weights.
The base year is being changed because economic structures evolve over time. The current base years of 2011–12 and 2012 no longer reflect today’s consumption and production patterns. Updating them will provide a more accurate measure of real growth and inflation.
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