Most recent monetary policy by the Reserve Bank of India saw it keeping its repo rate at 5.5% and also adopting a neutral stance of monetary policy in its recent policy meeting. The central bank also revised the GDP growth estimate of FY26 in India to 6.8 percent versus 6.5 percent and reduced the inflation estimates to 2.6 percent versus 3.1 percent. Such a moderate stance suggests the optimism of the RBI in India in terms of its economic strength, even in the face of external headwinds of US tariffs and global uncertainties in emerging markets.
The Monetary Policy Committee maintains a unanimous status quo decision
According to Hindustan Times, the monetary policy committee unanimously decided to maintain the repo rate at 5.5 per cent, with Sanjay Malhotra, RBI Governor, stating in his policy speech on Wednesday. Previously, 24 of 39 economists who were polled by Bloomberg News swore to the status quo, with the remainder forecasting a quarter-point decline. The Fed has already reduced rates by 100 basis points this year.
According to EBC Financial Group, the Standing Deposit Facility is maintained at 5.25% with the Marginal Standing Facility, and the bank rate is being maintained at 5.75% to maintain the band around the unchanged policy rate. In the past months, the MPC had reduced interest rates by 100 basis points at the last session. The economic growth outlook is stable because of the favourable monsoon, reduced inflation, and monetary easing.
Improved macroeconomic fundamentals support optimistic growth projections
Macros on the Indian economy are now viewed to be improving, to be sure. RBI is now projecting the inflation rate in India for FY26 at 2.6% compared to 3.1% previously. The growth forecast for the GDP is adjusted at a higher rate of 6.8% as compared to the previous forecast of 6.5%. This followed an even better-than-anticipated 7.8% growth rate in the April-June quarter of the Indian economy this year.
The tariff issues weighed against domestic reforms
The MPC is trying to strike a balance between conflicting priorities, a tamed inflation and growth risks on one hand, due to US President Donald Trump imposing 50 percent tariffs on goods imported to the country, and the rupee plummeting on the other. The tariffs are taking a toll on the growth prospects of India, even though the performance of India has been very good this year and has shaken the market in the country, triggering a sell-off of stocks by foreign investors.
The RBI governor said tariff-related development would slow growth in the second half of the fiscal, but GST and other reforms would mitigate the effects of the external factors on economic growth to some degree. GST rates were reduced by the government in an attempt to boost incomes and confidence. The action will probably alleviate inflation, which has been lingering in the lower 2%-6% target range of the RBI in the recent past. Rationalisation of GST will impact positively but soberly on inflation, and spur consumption and growth.
Policy framework balances growth momentum with inflation control
The real GDP growth forecast given by the central bank in FY 26 was increased to 6.8% as compared to 6.5% due to the robust domestic demand and recently enacted reforms. It reduced the FY26 CPI inflation forecast to 2.6% compared to 3.1% in August due to reduced food prices and the effects of GST rationalisation. The quarterly CPI forecast is towards 1.8% in Q2 and Q3 FY26, 4.0% in Q4, and 4.5% in Q1 FY27.
The balanced monetary policy that the RBI has taken is seen to be based on confidence in the economic fundamentals of India, but also the realization that there are external issues that we face. The improved GDP outlook and lower inflation expectations are indicators of the better macroeconomic performance that has been aided by domestic reforms.