RBI Holds Rates; Growth Bolstered by Trade Deals

The Reserve Bank of India (RBI) left its repo rate unchanged at 5.25% on Feb. 6, in line with market expectations. Governor Sanjay Malhotra cited benign inflation (around 1.3% in Dec) and a strong outlook supported by newly inked trade pacts with the EU and U.S. The MPC emphasized that the economy is benefiting from domestic demand and infrastructure spending, and that the recent free trade agreements would ease a major source of external pressure. The monetary stance was kept at “neutral.”

India remains one of the world’s fastest-growing large economies, and fiscal measures (the Feb 1 budget) aim to sustain 6.8–7.2% GDP expansion. RBI economists now project growth around 7.0% in the next year, with inflation dipping back near the 4% target after recent declines. However, policymakers noted new risks: Geopolitical turmoil and volatile commodity prices (especially oil) could inflate inflation unexpectedly.

Market reaction was modest: the rupee weakened slightly after the announcement, but the key takeaway was stability. Several economists argue that with the buffeted global backdrop, RBI likely will hold rates through 2026, focusing instead on managing liquidity. As Kotak Mahindra economist Upasna Bhardwaj noted, “The uptick in commodity prices and weaker currency may pose upside risks to inflation… We therefore see limited room for additional easing on the repo rate front”. In short, the RBI will stay on pause while growth remains solid and external conditions are closely watched.

Pull quote: “Geopolitical uncertainty… and volatility in energy prices… pose upside risks to inflation,” Governor Malhotra said, justifying the hold