Monetary Policy Update by the Reserve Bank of India (RBI)
The Reserve Bank of India’s Monetary Policy Committee (MPC) has announced a cut in the repo rate by 25 basis points to 5.25%, aiming to reduce lending and deposit rates across banks. This decision marks a shift towards supporting economic growth amidst a depreciating rupee.
Key Economic Indicators
- GDP Growth: The RBI has revised its GDP projection for FY26 upwards to 7.3% from 6.8%.
- Inflation: The Consumer Price Index (CPI) forecast has been reduced to 2% from 2.6%.
- Current Growth and Inflation: Inflation is at 2.2%, and growth at 8% during the first half of FY2026, termed a “rare Goldilocks period” by RBI Governor Sanjay Malhotra.
Policy Decisions
- The MPC voted unanimously to reduce the policy repo rate, maintaining a neutral stance, with one member suggesting a shift to an accommodative stance.
- The RBI plans open market operations to purchase government securities worth Rs 1 lakh crore and conduct a USD 5 billion swap.
Economic Outlook
- Growth Projections: GDP forecast for October–December raised to 7% and January–March 2026 to 6.5%.
- Growth is expected to soften in the latter quarters due to the high base effect.
Inflation Outlook
- Inflation projection for Q3 FY26 revised down to 0.6% and Q4 FY26 to 2.9%.
- Q1 FY27 inflation estimate reduced to 3.9%.
Market Response and Currency Stability
- The rupee has breached the 90-mark against the dollar, closing at 89.95.
- The RBI Governor emphasized no specific currency level targets, stating a belief in market efficiency.
Governor's Commentary
- RBI Governor Sanjay Malhotra highlighted the current benign inflation and resilient growth providing room for rate cuts.
- The Governor noted that despite the rupee's volatility, the RBI does not target specific currency levels.
