MUMBAI: The Reserve Bank-led rate-setting panel has opted for continuity in the final monetary policy review of the current fiscal, keeping the repo rate unchanged at 5.25% and also retaining the neutral policy stance. However, it has promised that lower rates are here to stay for longer unless macro data and inflation do not surprise on the downsides as the central bank will ensure that the economy gets ample liquidity support, amidst the resilient domestic growth and lingering global uncertainties.
That the MPC has left the repo rates unchanged at 5.25% and has also retained the neutral stance (though the external member Ram Singh wanted the policy stance to be moved to accommodative, according to governor Sanjay Malhotra) signals only a pause, not an end, to easing as the governor promised ample liquidity at lower cost of funds for a longer period.
As the rationale for the status quo policy, the MPC has noted that since the last policy meeting in December, external headwinds have only 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, governor Malhotra said Friday.
“Based on a comprehensive review of the domestic macroeconomic conditions and the outlook, the MPC decided that the current policy rate is appropriate. Going forward, the panel 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,” Malhotra said in the policy announcement.
However, later at the customary post-policy presser the governor said, “Whether 5.25% is the terminal repo rate or not will be decided by the MPC. All I can tell you is that given the Goldilocks condition that the economy is in and the very benign inflation outlook, the existing lower rates will be there for a longer period and even though the stance remains neutral, for all practical purposes, we are accommodative when it comes to offering ample and durable liquidity for the growth needs of the economy.”
“We are certainly in the same sweet spot, maybe even better, because growth is looking up, growth is looking even better, and inflation is the same. The minor blips in the headline inflation is primarily to do with base effects, and with food prices, and that underlying inflation, barring precious metals, continues to be benign. So, we are in more or less the same position, in so far as inflation is concerned,” the governor said.
Growth seems to be better than earlier, he said, adding, “In fact we are in a better position than when we met last. Since then a number of positive developments have happened that places us in an even better position now than we were earlier.”
Boosted by the trade deals and resilient exports, the RBI has forecast FY26 growth to print in at (according to the first advance estimates) 7.4%. Taking all these factors into consideration, real GDP growth projections for Q1 and Q2FY27 are revised upwards to 6.9% and 7%, respectively.
When asked whether the growth outlook being upwardly revised for the current year and the first half of next fiscal means the economy continues to be in the Goldilocks position, Malhotra said with the trade deals in place, the sweet-spot that the economy has been going through has only sweetened further.
The governor later told reporters that this upward revision in growth forecast includes a 20-bps-growth booster from the trade deal with the US which has slashed tariffs to a low 18% (while the effective blended rate will only be 12.6%).
Similarly, on the inflation front, Malhotra said the MPC sees prices remaining benign going forward as both headline and core inflation have been well under control for long now.
On the headline inflation trajectory, unfavourable base effects stemming from large decline in prices observed in Q4 of FY25 would lead to an uptick in y-o-y inflation in Q4 FY26, despite the anticipated momentum being muted.
“Considering all these factors, CPI inflation for FY26 is now projected at 2.1% with Q4 at 3.2% and the same for Q1 and Q2 FY27 are projected at 4% and 4.2%, respectively. Excluding precious metals, the underlying inflation pressures remain muted and the risks are evenly balanced,” the MPC said.