Reserve Bank of India Holds Rates
Citing Resilient Growth justified a Neutral Policy
February 6, 2026 – In its first monetary policy statement of the year, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate unchanged at 5.25 per cent. Following a detailed assessment held from February 4 to 6, 2026, the committee, chaired by Governor Shri Sanjay Malhotra, also decided to retain a neutral stance on monetary policy. Consequently, the standing deposit facility (SDF) rate remains at 5.00 per cent, while the marginal standing facility (MSF) rate and the Bank Rate stand at 5.50 per cent.
Domestic Growth Outlook
The Indian economy continues to show strong momentum, with real Gross Domestic Product (GDP) estimated to grow at 7.4 per cent for the 2025-26 fiscal year. This growth is supported by significant contributions from private consumption and fixed investment, as well as a buoyant services sector and a revival in manufacturing activity.
While net external demand has been a drag due to imports outpacing exports, the RBI remains optimistic about future trade prospects. The central bank highlighted that merchandise exports are expected to receive a boost from a prospective trade deal with the United States and a landmark comprehensive trade pact with the European Union. Taking these factors into account, the MPC revised its real GDP growth projections upward to 6.9 per cent for Q1:2026-27 and 7.0 per cent for Q2:2026-27.
Inflation Dynamics
Headline inflation has remained benign, recording low figures of 0.7 per cent in November and 1.3 per cent in December 2025. This trend is largely attributed to deflation within the food group and moderate inflation in the fuel group.
However, the MPC noted a slight upward revision in the future inflation outlook, primarily driven by an increase in the prices of precious metals, which are contributing about 60-70 basis points to the figures. Despite this, underlying inflation pressures remain muted when excluding precious metals. The RBI projects CPI inflation for 2025-26 at 2.1 per cent, with projections rising to 4.0 per cent and 4.2 per cent for the first and second quarters of 2026-27, respectively.
Rationale and Future Policy
The MPC stated that the current policy rate remains appropriate given that domestic economic activity is resilient despite intensifying external headwinds. While the vote to maintain the rate was unanimous, there was a divergence of opinion regarding the policy stance; member Prof. Ram Singh argued for shifting the stance from neutral to accommodative.
The next meeting of the MPC is scheduled for April 6-8, 2026. Future policy decisions will be guided by evolving macroeconomic conditions and will incorporate data from new GDP and CPI series (base 2024=100) set to be released later in February 2026.
MPC Statement: https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR20530D3EAF28B417497981BA800A7B3C0DCC.PDF