Interest Rates Unchanged
The Reserve Bank of India's Monetary Policy Committee (MPC) made a unanimous decision to keep the benchmark repo rate at 5.25% during its February meeting.
This move signifies a pause in the rate-cutting cycle that began previously. The central bank also affirmed its 'neutral' monetary policy stance, indicating a balanced approach to managing liquidity and inflation. Alongside the repo rate, the Standing Deposit Facility (SDF) rate remains at 5%, and the Marginal Standing Facility (MSF) rate is also held at 5.50%. This consistent approach underscores the RBI's assessment of the current economic conditions, balancing growth momentum with price stability amidst global uncertainties.
Inflation Outlook Stable
The RBI anticipates a slight increase in retail inflation, but remains confident that it will stay within the mandated tolerance band of 2-6%. For the fiscal year 2026, the projected Consumer Price Index (CPI) based inflation is 2.1%, a minor upward revision from the previous 2%. Projections for the fourth quarter of FY26 are set at 3.2%, with expectations for the first and second quarters of FY27 to reach 4% and 4.2%, respectively. This uptick is partly attributed to unfavorable base effects from a significant price drop observed in the previous fiscal year's fourth quarter. The central bank will introduce updated CPI projections for the full fiscal year 2027 in its April policy statement following the implementation of the new CPI series.
Growth Projections Revised
The Indian economy's growth trajectory is looking stronger, prompting the RBI to revise its real GDP growth forecasts upwards. For the fiscal year 2026, the growth outlook has been nudged to 7.4% from the earlier estimate of 7.3%. Looking ahead to the first half of fiscal year 2027, projections have also been enhanced, with Q1 expected to grow at 6.9% (up from 6.7%) and Q2 at 7% (up from 6.8%). These upward revisions reflect confidence in the sustained economic momentum, bolstered by recent trade agreements. Full-year GDP projections will be released later, coinciding with the new GDP series data.
Regulatory Enhancements Planned
To bolster customer protection, financial inclusion, and operational ease for financial institutions, the RBI is set to introduce a suite of new regulatory measures. Three draft guidelines will be issued focusing on preventing mis-selling, regulating loan recovery practices, and limiting customer liability in unauthorized electronic transactions. A significant proposal includes a framework to compensate customers up to ₹25,000 for losses incurred in small-value fraudulent transactions. Furthermore, the RBI plans to publish a discussion paper on enhancing digital payment security and proposes to raise the collateral-free loan limit for MSMEs from ₹10 lakh to ₹20 lakh. Banks will also be permitted to lend to REITs under specific prudential guidelines.
Facilitating NBFC Operations
In a bid to streamline operations for Non-Banking Financial Companies (NBFCs), the RBI has announced measures to ease doing business. NBFCs that do not involve public funds or customer interaction, and have an asset size not exceeding ₹1,000 crore, may be exempted from the registration requirement. Additionally, the RBI proposes to waive the prior approval requirement for certain NBFCs looking to open more than 1,000 branches, further promoting their expansion and accessibility. These initiatives are designed to foster a more conducive environment for NBFCs to operate and grow within the financial ecosystem.
Proactive Liquidity Management
The Reserve Bank of India has committed to maintaining a proactive approach to liquidity management within the banking system. The central bank aims to ensure ample liquidity to support the economy's productive needs and facilitate the effective transmission of monetary policy. This management strategy will be forward-looking, anticipating and accommodating potential fluctuations arising from government balances, changes in currency in circulation, foreign exchange interventions, and other unforeseen events. By ensuring sufficient liquidity, the RBI seeks to maintain financial stability and support economic growth.
