The Reserve Bank of India (RBI) held its key repo rate steady on Friday, supported by a favourable economic outlook and easing pressures from recent trade agreements with the US and Europe.
The conclusion of a free trade agreement with the EU and a tariff deal with the US, expected to be finalised by March, which includes lower US tariffs on Indian imports, should relieve a major source of pressure on India’s economy and financial markets.
The RBI’s six-member Monetary Policy Committee unanimously voted to maintain the repo rate at 5.25%, matching the consensus forecast in a Reuters poll.
“The MPC noted that since the last policy meeting, external headwinds have intensified, though the successful completion of trade deals augurs well for the economic outlook,” Governor Sanjay Malhotra said within his policy statement.
The RBI maintained a “neutral” monetary policy stance, signalling that interest rates are likely to remain low for the near term.
According to Malhotra, the current policy rate is appropriate, with inflation remaining subdued, and any future adjustments will depend on the trajectory of growth and inflation.
Since February last year, the central bank has cut rates by a total of 125 basis points, marking its most aggressive easing since 2019, including a 25-basis-point cut at its December meeting.
India continues to rank among the world’s fastest-growing major economies, supported by robust domestic demand, substantial public infrastructure spending, and a relatively resilient services sector.
The economy is projected to expand by 7.4% in the current financial year, with the government’s economic adviser forecasting growth of 6.8%-7.2% for the following year.
Although trade tensions with the US have weighed on India’s economy, Washington has agreed to reduce tariffs on Indian imports from nearly 50% to 18% in return for India stopping Russian oil purchases and easing certain trade barriers.
Inflation in India has remained low, projected to average around 2% in the current financial year, well below the RBI’s 4% target. In December, retail inflation rose to 1.33%, the highest level in three months.
India’s benchmark 10-year bond yield climbed following the RBI’s decision not to introduce any liquidity support measures. The Rupee slipped 0.1%, while major equity indexes recovered earlier losses and were trading largely unchanged.
Economists anticipate that the RBI will maintain its current policy in the near term, in line with several other Asian central banks, such as those in South Korea and Indonesia, which have indicated pauses in their easing cycles due to inflation concerns and external pressures.
“We expect the central bank to remain on an extended pause amid a positive cyclical up-cycle and gains from the successful conclusion of US trade negotiations,” stated Radhika Rao, senior economist at DBS Bank in Singapore.
The Indian government has projected economic growth of 6.8%-7.2% for the financial year, supported by recent trade agreements, strong agricultural output following abundant rainfall in 2025, and tax cuts designed to stimulate urban consumption.
Meanwhile, the RBI has slightly raised its inflation forecast for the current financial year to 2.1% from 2%.