The Reserve Bank of India (RBI) on Wednesday kept the policy repo rate unchanged at 5.5 per cent, with the Monetary Policy Committee (MPC) noting that the macroeconomic environment had created space for supporting growth even as it considered it prudent to wait for the impact of earlier policy actions and greater clarity to emerge on trade-related uncertainties.
“The overall inflation outlook has turned even more benign in the last few months, due to a sharp decline in food prices and the rationalisation of GST rates,” Malhotra said. Average headline inflation for FY26 has been revised down to 2.6 per cent from 3.1 per cent in August and 3.7 per cent in June. Core inflation, he added, is also expected to remain contained through the year and into Q1 of 2026-27.
On growth, the MPC observed that domestic demand remains resilient, aided by a favourable monsoon, lower inflation, monetary easing and recent GST reforms. While the growth outlook for FY26 has been revised upwards (from 6.5 per cent to 6.8 per cent), Malhotra acknowledged that “growth continues to be below our aspirations” and external trade headwinds are expected to weigh in from Q3 onwards.
Highlighting “prevailing global uncertainties and tariff-related developments,” Malhotra said these could slow momentum in the second half of FY26. The MPC therefore opted to wait for the impact of earlier rate cuts and fiscal measures to play out before taking further steps.
Voting for a status quo, the six-member MPC also retained its “neutral” stance, signalling a balance between sustaining growth and keeping inflation aligned with the 4 per cent target. However, two members—Nagesh Kumar and Ram Singh, were of the view that the central bank’s stance should be changed from neutral to accommodative.
“Mint Road perceives risks around its growth projections to be balanced, affording it the elbowroom to wait and watch, given incomplete transmission of previous rate reductions,” said Dharmakriti Joshi, chief economist at Crisil.
Economists, however, expect easing ahead. “We see scope for 25-50 basis points rate cuts in the rest of FY26,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. Sakshi Gupta, principal economist at HDFC Bank, added that if tariff risks persist, the repo rate could be cut further to 5 per cent.