RBI keeps Repo at 5.25%, projects stable inflation and stronger growth

The Reserve Bank of India (RBI) on Friday signalled that key policy rates are likely to remain low for an extended period and could decline further, even as it revised its inflation projections upward due to rising prices of precious metals.

RBI Governor Sanjay Malhotra made the remarks at a post-monetary policy press conference after the central bank kept the repo rate unchanged at 5.25 per cent and maintained a neutral policy stance.

“The policy rates will continue to be at low levels for a long period of time and may go down even further,” Malhotra said, adding that decisions on rate changes would rest with the Monetary Policy Committee (MPC) .

Since February last year, the RBI has reduced the repo rate by 125 basis points . Malhotra noted that policy transmission on the deposit side has been slower and fixed deposit interest rates are expected to soften further.

The RBI revised its inflation projection for the current financial year to 2.1 per cent and raised estimates for the first and second quarters of 2026-27 to 4 per cent and 4.2 per cent , respectively, mainly due to higher prices of precious metals .

In December, the inflation projection for 2025-26 had stood at 2 per cent . Headline CPI inflation remained subdued at 0.7 per cent in November and 1.3 per cent in December 2025 . Food inflation continued in deflationary territory , while fuel inflation remained moderate.

Core inflation, excluding food and fuel, stayed benign despite the rise in gold prices. Excluding gold, core inflation stood stable at 2.6 per cent in December .

“The slight upward revision in the inflation outlook is primarily due to the increase in prices of precious metals, which contribute about 60–70 basis points . Underlying inflation remains low,” Malhotra said.

He added that food supply prospects remain strong due to healthy kharif output, adequate buffer stocks, favourable rabi sowing and sufficient reservoir levels. However, geopolitical uncertainty, volatile energy prices and adverse weather conditions pose upside risks to inflation.

The RBI said it will present CPI inflation projections for the full year 2026-27 in April , following the release of the new CPI series (base 2024=100) on February 12.

On growth, Malhotra said recent trade agreements signed by India could add up to 20 basis points to GDP growth . The RBI has already revised upward its GDP forecast for the first and second quarters of the next fiscal year.

Deputy Governor T Rabi Sankar said the central bank would be able to manage the government’s borrowing programme comfortably. The government’s gross borrowing is pegged at Rs 17.2 lakh crore , with net borrowing at Rs 11.73 lakh crore .

Malhotra said Treasury Bills will help manage the yield curve and ensure borrowing is conducted at reasonable rates.

Commenting on the Union Budget’s announcement on data centres, he said it is expected to attract significant foreign investment. He also noted that currency in circulation has risen sharply over the past year.