The Reserve Bank of India (RBI) has kept its benchmark repo rate unchanged at 5.25%, reflecting optimism that trade deals with the European Union and the US will turn out positive on the Indian economy’s growth prospects.

The RBI-led monetary policy committee (MPC), which concluded its three-day meeting today, also maintained its neutral stance.

RBI Governor Sanjay Malhotra said the repo rate will stay low for a long period of time and may go down even further. He also said that the trade deal with the US augurs well for the Indian economy while inflation remains less of a worry.

"With the signing of a landmark Free Trade Agreement (FTA) with the European Union and the framework of the India-US trade deal in sight, growth momentum is likely to be sustained for a longer period," Malhotra said, while announcing the RBI’s bi-monthly monetary policy.

Earlier this week, the US announced a lowering of tariffs on Indian exports to 18% from the earlier 50%. Last month, the EU and India signed a free trade agreement.  

The interest-rate pause was in line with the market expectation as the RBI waits for transmission of previous rate cuts by the banks. Indianbankingnews.com had earlier reported that the RBI had several reasons which would go for a pause in interest rates.

Starting a rate-easing cycle in February last year, the RBI has reduced the key repo rate by 125 basis points to 5.25% as it sought to lower borrowing costs and focus on growth. In the last December policy, the central bank cut the repo rate by 25 basis points.

In his policy address, Malhotra said the Indian economy is in a good spot amid global uncertainty. The underlying data shows growth which can sustain for a longer period.

Emphasizing on the customer-centric moves, Malhotra said a framework will be introduced to compensate customers up to Rs 25,000 for losses in small-value digital transaction frauds. He also said that draft guidelines will be issued on the misselling by lenders, recovery of loans and the use of recovery agents.

Inflation forecast revised

The RBI marginally raised its inflation forecast to 2.1% for FY26, from 2% earlier. This is due to the upward projection for Q4 at 3.2% (versus 2.9% estimate made in December 2025). 

The consumer price index (CPI) inflation for Q1 and Q2 of FY27 have been revised slightly upward to 4% and 4.2%, respectively. The earlier estimates made in the December policy for Q1 and Q2 of FY27 were at 3.9% and 4%, respectively.

"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," RBI said.

The RBI, however, refrained from providing a forecast for FY27, owing to the release of the new CPI series (base year: 2024) on 12 February 2026.

“In view of the impending release of the new CPI series (base 2024=100) on February 12, 2026, similar to growth, we will present CPI inflation projection for the full year 2026-27 in the April 2026 Policy Statement,” said Malhotra.

GDP forecast for FY27 upgraded

The RBI lifted its GDP forecast for FY26 to 7.4% from 7.3% earlier in the wake of trade deals and strong domestic demand.

The RBI also revised upward its GDP projection for the first half of FY27, estimating it at 6.9% in Q1 and 7% in Q2. The earlier estimates for Q1 and Q2 were at 6.7% and 6.8%, respectively. 

The economic activity in the next financial year would be backed by sustained momentum in consumption and investment. Household spending is likely to be supported by urban demand, improving labour market conditions and easing inflationary pressures.

“Amidst heightened geo-political tensions and elevated uncertainty, the Indian economy is in a good spot with strong growth and low inflation,” said Malhotra.

The RBI deferred the projections for the full-fiscal of FY27 to the April 2026 policy on account of the new GDP series, which is set to be released at end-February 2026.