Strong growth and low inflation convinced the Reserve Bank of India’s (RBI’s) rate-setting panel to stay on pause in February, according to minutes of the panel’s 4-6 February meeting released Friday.
“Given the present state of the economy and its outlook—buoyant growth and benign inflation—I feel the current policy rate is appropriate,” Reserve Bank of India (RBI) governor Sanjay Malhotra said in his statement in the minutes, adding that several recent developments on the external front have provided room for greater optimism.
All six members of the monetary policy committee (MPC) backed holding the policy repo rate at 5.25%, the minutes showed. The decision follows cumulative rate cuts of 125 basis points since February 2025, with members saying that transmission of the December reduction is still underway.
“The efficacy of monetary policy transmission also depends critically on the persistence and consistency of the policy signal,” MPC member Indranil Bhattacharyya said.
However, there was one dissenting voice when it came to the central bank’s stance. Five members voted to retain the stance as neutral, and external member Ram Singh retained his view that the stance be changed from neutral to accommodative.
He argued that, given the stable inflation and fiscal outlooks, an accommodative stance would facilitate transmission of the rate cuts so far by putting downward pressure on market rates.
Singh said that in view of the reduced volatility underlying headline CPI and the dormancy of the CPI core, excluding gold and silver, it cannot be the end of the current easing cycle. He added that the convergence of internal price stability, robust economic fundamentals, and developments on the trade and investment fronts has created a rare window for monetary policy, in which remaining ‘neutral’ was not appropriate at a moment that demands a proactive signal to the economy.
“The exact quantum and timing of the further rate cut will depend on the incoming data, but a growth-supporting stance is very much consistent with a stable inflation outlook,” he said.
“Our base case is for the MPC to keep policy rates unchanged through FY26-27, though we expect more durable liquidity infusion measures to be announced,” Barclays said in a research note on Friday after the release of MPC minutes.
Given the current surplus liquidity situation, Barclays expects any OMO (open market operations) purchase announcement to happen only after the current liquidity surplus narrows.
The need for additional buy-sell foreign exchange swaps is lower in light of the prospective India-US trade deal’s positive impact on the Indian rupee, the foreign bank said.
Strong fundamentals
India’s macroeconomic backdrop appears supportive even as global headwinds persist, with real GDP growth estimated by the RBI at 7.4% in 2025-26, driven by private consumption and fixed investment.
The MPC also upwardly revised GDP growth projections for the first two quarters of FY27 to 6.9% and 7%, respectively, citing stronger domestic momentum and recently concluded trade agreements.
Headline retail inflation (CPI or consumer price index-based) was projected at 2.1% for the year before rising closer to the 4-4.2% target in the first half of FY27.
Several members emphasised that this projected uptick in inflation will be largely driven by prices of precious metals, with underlying price pressures remaining subdued.
“With headline inflation remaining well below the target throughout 2025-26 and projected at around the target in H1:2026-27, the current policy rate and the stance offer scope for remaining growth-supportive without stoking inflation,” Bhattacharyya said.
The modest upward revision in projected inflation does not warrant a change in the policy rate, he said, so long as it remains within the tolerance band of the FIT (flexible inflation targeting) framework and does not unhinge inflation expectations.
MPC external member Nagesh Kumar echoed Bhattacharyya’s view, describing the inflation environment as firmly under control.
“The inflation outlook continues to remain benign, with headline CPI remaining low at 1.3% in December 2025, and the inflation outlook not showing any concerns of overheating,” Kumar said.
With oil prices likely to remain contained amid evolving geopolitical developments, Kumar suggested India could remain in what he called a “‘goldilocks’ zone for longer”—characterised by strengthening growth and low inflation.
At the same time, he added that the narrative for monetary policy may gradually shift.
“Now, with the continued benign inflationary outlook opening up some policy space and with growth rates looking up, the monetary policy may turn its focus to support the acceleration of economic growth rates from around 7% to around 8%,” Kumar said.