RBI holds repo rate at 5.25%, cuts GDP growth forecast to 6.6% and raises inflation outlook- Key takeaways from MPC meeting

The Reserve Bank of India on Friday decided to maintain its repo rate at 5.25 per cent, revised the GDP growth forecast for India for the current fiscal year to 6.6 per cent from 6.9 per cent, and raised the inflation projection to 5.1 per cent from 4.6 per cent. RBI warned that elevated energy prices and global supply chain constraints are likely to have spillover effects. RBI maintained the repo rate for the second monetary policy meeting consecutively; its decision to maintain a “neutral” stance on the repo rate has sparked widespread market discussions about emerging stagflationary risk.

Repo rate unchanged

RBI Governor Sanjay Malhotra said that the MPC voted unanimously to maintain the repo rate under the liquidity adjustment facility at 5.25 per cent. While the wholesale prices (WPI) have been alarming, core retail inflation (CPI) has been relatively stable, giving RBI some breathing room. Core inflation also increased to 5.1 per cent from 4.6 per cent, within the tolerance level. India's current situation, however, is more complex; a sliding Rupee and the oil shock have made essential imports costlier. Further, there is a concern over a monsoon shortfall that is likely to add to the stagflationary risk.

Growth projection revised

RBI has revised its growth projection just ahead of the Ministry of Statistics and Programme Implementation releasing the provisional estimate of GDP for 2025-26 at 4 pm later today. GDP growth estimate revised downward to 6.6 per cent for FY27 from 6.9 per cent. However, this is still considered optimistic from a global outlook as Goldman Sachs projects India’s economic growth at 5.9 per cent, revising it from the earlier projection of 7 per cent.

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Key measures to hold foreign capital

Along with the sliding rupee, the biggest problem since the start of the 2026 calendar year has been the outflow of foreign capital, $13.7 billion has left India, specifically in the equity segment. In order to attract foreign capital, the RBI has decided to incentivise them. The union government has said that it would exempt foreign institutional investors and the Bank for International Settlements from capital gains tax from April 1, 2026. Other key measures include removing limits on investments in other government securities and investments by Non-Resident Indians and Overseas Citizens of India. All new issuances of 15-year, 30-year and 40-year government bonds will be a part of the Fully Accessible Route. Bonds under this category are part of three global indexes. It has also decided to offer a concessional forex swap facility until September 30, 2026, to incentivise external commercial borrowings by the public sector. RBI will also bear the full hedging costs on fresh 3-5 year Foreign Currency Non-Resident deposits until September 30, 2026.