The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) took a major decision on Wednesday amid a fresh crisis in West Asia and rising inflationary pressures. The RBI kept the benchmark interest rates unchanged, leaving the repo rate steady at 5.25 percent.
The central bank also maintained its policy stance as “neutral.” Following the MPC’s decision, there was no change in the other key policy rates:
- Standing Deposit Facility (SDF) Rate: Maintained at 5 percent
- Marginal Standing Facility (MSF) Rate: Unchanged at 5.50 percent
- Bank Rate: Unchanged at 5.50 percent
GDP Growth Forecast Raised for FY27
Providing some relief on the economic front, the RBI raised its GDP growth forecast for financial year 2027 (FY27) by 10 basis points. The forecast has now been increased to 6.7 percent.
RBI Governor Sanjay Malhotra expressed confidence that strong domestic demand would continue to support economic growth. According to Governor Malhotra, the Indian economy is receiving strong support from robust domestic demand, continued expansion in the manufacturing and services sectors, and strong exports.
Governor’s Statement on Inflation and Core Inflation
Speaking about inflation, Governor Sanjay Malhotra said that core inflation, excluding precious metals, has remained benign for some time and is expected to align with headline inflation by the end of the financial year.
He explained that although headline inflation is expected to increase, the main reasons behind the rise are supply-side pressures related to food and fuel. Realised inflation in the first quarter (Q1) was slightly lower than projected, indicating that cost pressures have had only a limited pass-through to consumers.
Inflation Outlook and Global Challenges
The RBI Governor made it clear that the recent increase in inflation has mainly been driven by food and fuel prices. So far, there is limited evidence of broader price pressures across the economy.
Headline inflation is expected to rise further in the near term and is likely to reach its peak in the third quarter (Q3) of FY27. It is then expected to moderate. Excluding precious metals, underlying inflation remains under control and is broadly in line with earlier projections.
Governor Malhotra also referred to global uncertainties and said that the outlook remains somewhat unclear because of uncertainties surrounding global trade policies. He emphasized that greater clarity on inflation, its trajectory, and its underlying composition would be necessary before taking any policy action.
