Policy Stance Holds Steady
In a significant move for India's economic trajectory, the Monetary Policy Committee (MPC) of the Reserve Bank of India has elected to maintain the benchmark
repo rate at its existing level of 5.25%. This decision marks a pause in the series of rate adjustments that have occurred, following cumulative cuts totaling 125 basis points, including a 25-basis point reduction in December. The committee has also reaffirmed its 'neutral' policy stance. This strategic pause signals a degree of assurance in the nation's ongoing economic expansion, even as global economic uncertainties persist. The MPC's rationale behind this pause is rooted in the need to carefully evaluate how the previously implemented monetary easing measures are being transmitted through the economy, alongside monitoring the impact of the recent budget on growth prospects.
Inflation Outlook Confident
The RBI projects a favourable inflation scenario for the upcoming fiscal year (FY26), forecasting the Consumer Price Index (CPI) to settle at a comfortable 2.1 percent. While a slight uptick is anticipated, with inflation expected to reach 3.2 percent in the fourth quarter of FY26, then 4 percent in the first quarter and 4.2 percent in the second quarter of FY27, it is expected to remain well within the central bank's target band of 2–6 percent. This optimistic outlook for inflation is underpinned by expectations of benign food price pressures, attributed to a robust kharif harvest, favourable rabi sowing conditions, and ample buffer stocks. Nevertheless, the MPC acknowledges potential upward risks stemming from ongoing geopolitical tensions, the inherent volatility of global energy prices, and the unpredictable nature of weather patterns, which could impact food prices.
Growth Forecasts Ascend
Boosting confidence in India's economic resilience, the central bank has revised its real GDP growth forecast for FY26 upwards to 7.4 percent, a modest increase from the previous projection of 7.3 percent. This upward revision reflects a positive assessment of the economy's momentum. Projections for the initial quarters of the subsequent fiscal year are also robust, with growth anticipated at 6.9 percent in the first quarter of FY27 and 7 percent in the second quarter of FY27. These figures collectively suggest a sustained period of economic expansion. The MPC's assessment takes into account recent trade agreements with major economic partners like the US and the European Union, which are likely contributing to this optimistic growth outlook.
Data Series Evolution
Governor Malhotra highlighted a significant upcoming development that will influence future monetary policy decisions: India's adoption of a new series for calculating Gross Domestic Product (GDP) and inflation figures. This forthcoming change is anticipated to play a pivotal role in shaping the MPC's policy direction moving forward. The introduction of updated data series is crucial for ensuring that economic indicators accurately reflect the current state of the economy, allowing for more informed and precise policy formulation by the central bank. This evolution in statistical measurement underscores the RBI's commitment to data-driven decision-making and its proactive approach to adapting to changing economic dynamics.
