RBI Holds Repo Rate; FY26 GDP Growth Seen at 6.9%

The Reserve Bank of India (RBI) on Friday kept the repo rate unchanged at 6.5% for the 11th consecutive time, maintaining its stance of withdrawing accommodation to ensure inflation stays within the target band. The Monetary Policy Committee (MPC) also decided to keep the standing deposit facility (SDF) rate at 6.25% and the marginal standing facility (MSF) rate at 6.75%. The decision comes amid easing retail inflation but persistent food price pressures. The central bank revised its GDP growth projection for the current fiscal year (FY26) to 6.9%, slightly lower than the earlier estimate of 7.0%.

The MPC’s decision was not unanimous, but the majority voted in favour of the status quo. The central bank highlighted that while the Indian economy remains resilient, global uncertainties and volatile commodity prices pose risks. The RBI also noted that core inflation has moderated, but the overall inflation trajectory is still influenced by food prices. The central bank reiterated its commitment to align inflation with the 4% target on a durable basis, while supporting growth.

According to the RBI’s projections, retail inflation for FY26 is expected to average 4.5%, with Q1 at 4.9%, Q2 at 4.4%, Q3 at 4.2%, and Q4 at 4.4%. The GDP growth for the first quarter is projected at 7.1%, followed by 6.9% in Q2, 6.8% in Q3, and 6.9% in Q4. The central bank also announced measures to enhance liquidity in the system, including a $5 billion dollar/rupee swap auction to be conducted in the coming months.

The RBI’s decision to hold rates is in line with market expectations, as most analysts had predicted a pause. The central bank’s forward guidance suggests that it will continue to monitor inflation and growth dynamics closely. The rupee has remained stable, and the current account deficit is manageable. However, the RBI cautioned about the impact of global monetary policy tightening and geopolitical tensions on capital flows.

For investors, the unchanged repo rate means that home loan EMIs will remain steady for now. However, the RBI’s liquidity measures could ease short-term funding costs for banks, potentially leading to a slight reduction in lending rates in the near future. The equity markets have reacted positively to the announcement, with banking stocks gaining on the prospect of stable margins.

Analysts say that the RBI’s decision to maintain the repo rate at 6.5% is prudent given the uncertain global environment, but they expect a rate cut in the latter half of FY26 if inflation continues to moderate.

Looking ahead, the RBI’s projections indicate a stable growth-inflation mix, which bodes well for the Indian economy. The central bank’s focus on liquidity management and its commitment to the inflation target provide a clear policy direction. As the fiscal year progresses, all eyes will be on the monsoon and its impact on food prices, which will be crucial for the inflation trajectory.

For those looking to navigate the financial markets, staying informed about policy changes is key. The RBI’s stance and future actions will influence interest rates, bond yields, and equity valuations. To get more insights and updates on the Indian economy and markets, visit MarketToMoney.