Monetary Policy Overview
The Reserve Bank of India’s Monetary Policy Committee (MPC) chose to maintain the repo rate at 5.25%, indicating stability in lending and deposit rates with no changes in equated monthly instalments (EMIs) for personal loans.
Economic Projections
- GDP Growth:
- Revised upward to 7.4% from the earlier 7.3% for FY 2026.
- Driven by strong domestic consumption and trade agreements.
- Inflation:
- Retail inflation slightly increased to 2.1% from 2% in FY 2026.
- Consumer Price Index (CPI) inflation projections for Q1 and Q2 of the next fiscal year set at 4% and 4.2%, respectively.
Trade Agreements and Economic Impact
- India has signed trade agreements with the US, EU, Oman, and New Zealand.
- These agreements are projected to soften global uncertainties and support medium to long-term growth.
Domestic Economic Conditions
- Supported by robust consumption, projected to expand by about 7% in FY26.
- Boosted by income tax cuts, GST rationalisation, and subdued inflation.
- Favourable inflation outlook with strong growth momentum.
Monetary Policy Stance
- The MPC decided to retain a neutral policy stance to preserve flexibility in response to evolving macroeconomic conditions.
- Lending and deposit rates expected to remain stable unless influenced by liquidity conditions or bank funding costs.
External Economic Environment
- Geopolitical developments warrant close monitoring, though trade agreements provide a cushion.
- Global growth supported by tech investments and fiscal stimulus.
- Risks include geopolitical tensions, volatile crude oil prices, and shifts in global monetary conditions.
Outlook and Future Considerations
- Near-term inflation and growth outlook remain positive despite external headwinds.
- The MPC will be guided by evolving macroeconomic conditions, ensuring policy remains appropriate.
- The February policy decision reflects a cautious, deliberate pause aimed at maintaining flexibility.
Overall, the Reserve Bank of India’s monetary policy reflects optimism in domestic economic growth, a watchful eye on inflation, and strategic caution in the face of global uncertainties. Key focus areas include maintaining a stable economic environment with readiness to adjust policies as needed.
