MPC holds policy rate at 5.25%, revises growth projection upwards, FY26 inflation outlook at 2.1%

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI)  on Friday voted unanimously to keep the policy repo rate unchanged at 5.25%. The MPC also decided to continue with the neutral stance.

“The MPC noted that 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,” RBI Governor Sanjay Malhotra said in his Monetary Policy Statement on the rationale behind the decision.  

“The revised outlook for CPI inflation in Q1:FY27 and Q2 at 4% and 4.2% , respectively, continues to be benign and near the inflation target. The slight upward revision in the inflation outlook is primarily due to increase in prices of precious metals, which contribute about 60-70 basis points. The underlying inflation continues to be low,” he said.

“On the growth front, economic activity remains resilient. The growth outlook remains favourable. The MPC is of the view that the current policy rate is appropriate. Going forward, the MPC 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,” he added.

Taking various factors into consideration, real GDP growth projections for Q1:FY27 and Q2 are revised upwards to 6.9% and 7%, respectively. The risks are evenly balanced. “We are deferring the projections for the full year to the April policy as the new GDP series will be released later in the month,” he said.

Stating that core inflation, barring potential volatility induced by prices of precious metals, is expected to be range-bound, he said geopolitical uncertainty coupled with volatility in energy prices and adverse weather events pose upside risks to inflation.

Considering various factors, CPI inflation for FY26 is now projected at 2.1% with Q4 at 3.2% per cent. CPI inflation for Q1:FY27 and Q2 are projected at 4% and 4.2%, respectively. Excluding precious metals, the underlying inflation pressures remain muted. The risks are evenly balanced.

On liquidity and financial market conditions, the Governor said, going ahead, the RBI will remain proactive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy and to facilitate monetary policy transmission. 

“Liquidity management would be pre-emptive with sufficient allowance for unanticipated fluctuations in government balances, changes in currency in circulation and forex intervention,” he said.

Addressing a press conference, Mr. Malhotra said, “The macroeconomic fundamentals of the country, including the external sector, are very strong, very robust, very healthy whether you look at current account, the external side, or look at even the capital account side. The near-term, medium-term outlook is very healthy, is very favorable.”

“The government has taken a series of measures to increase our external position, number of bilateral as well as multilateral deals have been signed. All of these will help on the top of a very, very comfortable current account. On the investment side, the government has been very proactive,” he said. 

The Governor said, “We are very confident of meeting our external sector responsibilities. We have sufficient reserves for many many decades, not, for 11 months of import. So, on the external side, we are very comfortable.”

He said at a time when growth is looking up and inflation has remained same, India is in a sweet sopt. He said the policy rate will remain low for a long time to come.

In the opening remark in his Monetary Policy Statement, Mr Malhotra said, “We have already witnessed momentous actions on the geopolitical and trade-tariff fronts. Amidst heightened geo-political tensions and elevated uncertainty, the Indian economy is in a good spot with strong growth and low inflation.”

“Inflation remains below the tolerance band and its outlook continues to be benign. With the signing of a landmark trade deal with the European Union and the U.S. trade agreement in sight, growth momentum is likely to be sustained for a longer period.”

However, the confluence of escalating geopolitical frictions and rising trade tensions is unravelling the existing world economic order, he said.

Published – February 06, 2026 08:20 pm IST