RBI Guv Malhotra signals lower rates for longer, trade deal growth boost

MPC keeps repo, stance unchanged; awaits new data series

The six-member Monetary Policy Committee of the Reserve Bank of India unanimously decided to keep the policy repo rate unchanged at 5.25 per cent on Friday and said it will await the outlook based on data from the new series in charting the future course of monetary policy.

 

Since February last year, the repo rate was reduced by 125 basis points in order to support growth, with inflation prints remaining benign.

 

The stance of the policy was also kept neutral, which was supported by all the members except Ram Singh, who favoured an accommodative stance.

 

“Based on a comprehensive review of the domestic macroeconomic conditions and the outlook, the MPC is of the view that the current policy rate is appropriate,” RBI Governor Sanjay Malhotra said while announcing the policy decision. “Going forward, the MPC will be guided by the evolving macroeconomic conditions and the outlook based on data from the new series in charting the future course of monetary policy,” he said.

 

 

Commenting on the recent trade deals with the European Union and the United States, he said, “The recently concluded India–EU free trade agreement (FTA) and the prospective India–US trade deal, along with several other trade agreements, will support exports over the medium term.”

 

Bond markets were disappointed as no additional measures for liquidity support were announced. The yield on the 10-year benchmark government paper hardened by 9 basis points to settle at 6.74 per cent.

 

“Post-policy, however, bond yields climbed by close to 10 basis points, the largest increase since the June policy. The bond markets were expecting some sort of largesse like postponement and/or dilution of LCR (liquidity coverage ratio) norms,” said Soumya Kanti Ghosh, group chief economic adviser, State Bank of India.

 

Malhotra, however, said there is leeway for growth-supportive measures due to benign inflation.

 

“Benign inflation provides the leeway to remain growth-supportive while preserving financial stability. We remain committed to meeting the productive requirements of the economy and sustaining the growth momentum,” Malhotra said. Market participants, however, noted that there was no mention of “further space” for rate cuts, as was the case in the previous policy in December and earlier.

 

The RBI has revised the GDP growth forecast for the first and second quarters of FY27 upwards to 6.9 per cent and 7.0 per cent, respectively, from 6.7 per cent and 6.8 per cent.

 

“Looking ahead, domestic factors such as healthy agricultural prospects, continued impact of GST rationalisation, benign inflation, healthy balance sheets of corporates and financial institutions, and congenial monetary and financial conditions should continue to support economic activity,” Malhotra said. The RBI decided to defer projections for the full year to the April policy as the new GDP series will be released later this month.

 

CPI inflation projections for the first two quarters of the next financial year were also revised.

 

CPI inflation for 2025–26 is now projected at 2.0 per cent compared to 2.1 per cent earlier. CPI inflation for Q1 FY27 and Q2 FY27 was retained at 4.0 per cent and 4.2 per cent, compared to 3.9 per cent and 4.0 per cent earlier.

 

Inflation projections for FY27 will also be made in the April policy after the release of the new CPI series, scheduled later this month.

 

“The underlying inflation pressures are even lower, as the impact of the increase in prices of precious metals is about 50 basis points,” Malhotra said.

 

While there is an expectation that the central bank may have reached the end of the rate cut cycle, Malhotra indicated that policy rates are likely to remain low for a prolonged period.

 

“While we are now probably in a reasonable period of hold on rates, the next discussion, at whatever point, may turn to how long this hold lasts,” said Suyash Choudhary, chief investment officer – fixed income, Bandhan AMC.

 

The next meeting of the MPC is scheduled for April 6–8, 2026.