The Reserve Bank of India (RBI) kept the benchmark repo rate unchanged at 5.25 per cent on Friday (Feb 6), pausing its rate-cutting cycle in the February policy decision. This follows cumulative rate cuts of 1.25 per cent delivered by the Indian central bank through 2025. The policy rate now stands at its lowest level since July 2022.
RBI Governor reveals reason behind rate cut pause
RBI Governor Sanjay Malhotra explained in a statement that the decision to keep rates steady was influenced by slightly higher inflation projections and continued strength in economic growth.
“Since the last policy meeting, external headwinds have intensified. Though the successful completion of trade deals augurs well for the economic outlook. Overall, the near-term domestic inflation and growth outlook remain positive,” he said. He added that the near-term domestic inflation and growth outlook remains positive.
Growth outlook improves
The central bank adopted an optimistic tone on India’s economic performance, observing that the country continues to outperform expectations and remains the world’s fastest-growing major economy. Demonstrating that confidence, the RBI upgraded its growth forecast for FY26 to 7.4 per cent. The Governor said the Indian economy continues on a steady improving trajectory, with real GDP poised to register a significantly higher growth of 7.4 per cent in the current year compared to the previous year.
Malhotra also highlighted that the improving performance of the corporate sector and sustained momentum in the informal sector are expected to boost manufacturing activity, while construction sector growth is projected to remain firm.
Also Read: SBI Predicts RBI Will Keep Repo Rate Unchanged Amid Market Pressures
Officials noted that recent developments, including progress in an India-EU trade agreement and early signs of a US-India trade resolution, along with other trade agreements, are expected to support exports over the medium term.
Inflation seen rising slightly
While the overall price outlook remains stable, the RBI marginally raised its inflation projection to 2.1 per cent for the next fiscal year. “Unfavourable base effects stemming from large decline in prices observed during Q4 of last year, i.e., 2024-25, would lead to an uptick in year-on-year inflation in Q4 this year,” the Governor stated.
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