RBI keeps rates on hold, forecasts 6.9% growth for FY27

MUMBAI: The Reserve Bank of India has chosen to hold. Sanjay Malhotra announced that the Monetary Policy Committee unanimously kept the policy repo rate unchanged at 5.25%, even as he sketched a weaker growth outlook and firmer inflation path than in fY26.

Real GDP growth is now projected at 6.9% for the year, with a quarterly profile of 6.8% in Q1, 6.7% in Q2, 7.0% in Q3 and 7.2% in Q4. Inflation, by contrast, is expected to run higher, with CPI at 4.6% for the year, broken down into 4.0% in Q1, 4.4% in Q2, 5.2% in Q3 and 4.7% in Q4.

The shift reflects a change in risks. “Elevated crude oil prices could increase imported inflation and widen the current account deficit. Second, disruptions in energy markets, fertilizers and other commodities may adversely impact industry, agriculture and services, reducing domestic output,” the governor said. The list lengthens. “Heightened uncertainty, increased risk aversion and safe haven demand could impact domestic liquidity conditions, economic activity, consumption and investment,” he added. External demand may weaken; remittances may slow. Financial spillovers may tighten conditions and raise borrowing costs.

The outlook, accordingly, is more cautious. “Risks to the baseline projections are tilted to the downside, with uncertainty remaining elevated due to the ongoing West Asia conflict,” Malhotra said, warning that further escalation, volatile global financial markets and even weather shocks could weigh on growth.

Abroad, the picture is no better. Global trade is set to slow in 2026 relative to 2025, dragged down by tariff-related uncertainties, the West Asia conflict and elevated energy prices. India is already seeing the effects: merchandise exports have contracted while imports have surged, widening the trade deficit. Services exports and remittances may cushion the blow, keeping the current account deficit “moderate”, but rising energy prices and global uncertainty pose upside risks.

Even so, India looks sturdier than in past crises, and sturdier than some peers, Malhotra said. Yet despite “stronger macro economic fundamentals”, the rupee has depreciated. The central bank, the governor reiterated, does not target a level. It intervenes only to “smooth excessive and disruptive volatility”, leaving the exchange rate to the market.
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