After delivering an aggressive 125 basis points of rate cuts in 2025, the Reserve Bank of India appears to have shifted into a steadier phase, with policy focus moving from rapid easing to improving credit transmission, easing regulatory frictions for lenders and strengthening consumer protection. Against this backdrop, the Monetary Policy Committee’s unanimous decision to hold interest rates came as little surprise.
Explaining the pause, RBI Governor Sanjay Malhotra said the MPC had taken note of intensifying external headwinds since the last policy meeting, even as the successful conclusion of key trade deals improved the medium-term growth outlook. “The current policy rate is appropriate,” Malhotra said, adding that inflation remained benign and future rate moves would be guided by evolving growth and inflation dynamics.
The MPC retained its “neutral” stance, signalling that rates are likely to remain at current levels for the next nine to twelve months. “Whether rates go down further, I will leave that to the MPC,” Malhotra said, underlining the shift to a wait-and-watch approach.
Both growth and inflation projections were revised marginally higher.
Upward Revisions for Growth and Inflation
The RBI now expects GDP growth of 7.4% in FY26, followed by 6.9% in the first quarter and 7% in the second quarter of FY27. Consumer price inflation for FY26 has been projected at 2.1%, with inflation seen at 4% and 4.2% in the first two quarters of FY27. Encouragingly, core inflation — excluding gold — has remained stable at 2.6% and is expected to stay range-bound in the near term.
However, with the new GDP series scheduled to be introduced later this month, the central bank deferred full-year growth and inflation projections, citing the need for greater clarity.
Bond markets reacted cautiously, disappointed by the absence of a clear roadmap on liquidity infusion, despite Malhotra’s assurance that it was the RBI’s “duty” to ensure adequate liquidity and that it would continue to do so as required. The 10-year government bond yield rose nine basis points — its sharpest move since August — to close at 6.74%. Equity markets, however, were more upbeat, with the Sensex gaining 266 points to end at 83,580, while the rupee weakened 31 paise to close at 90.66 against the dollar.
Economists broadly viewed the policy outcome as expected. Pranjul Bhandari, chief India economist at HSBC, said the decision was likely influenced by the Union Budget’s shift away from aggressive fiscal consolidation and the announcement of trade deals with the EU and the US, which could support growth over time. While the RBI may remain agile in deploying liquidity tools in response to shocks, she said the central bank appears to have settled into a more stable rate regime.
Upasana Chachra, chief India economist at Morgan Stanley, said her team expects the policy pause to continue through 2026, with real interest rates averaging around 1.25%.
Beyond rates, the RBI signalled a broader push to deepen financial markets and improve inclusion. Measures announced included higher loan limits for MSMEs, support for NBFCs, REITs and urban cooperative banks, steps to develop the corporate bond market, and efforts to encourage foreign capital flows.
Beyond the Pause
The central bank also unveiled a series of consumer-centric proposals, including tighter norms on mis-selling and loan recovery practices. Notably, it proposed a framework to cap customer liability in unauthorised electronic banking transactions, with compensation of up to ₹25,000 for losses arising from small-value fraud — a move aimed at strengthening trust in the digital financial system
Taken together, the message is clear: the RBI is done chasing momentum for now. With growth holding up, inflation contained and fiscal policy turning supportive, the central bank is choosing patience over activism. The innings ahead may lack fireworks, but for policymakers, staying at the crease — steady, alert and ready to respond — matters more than quick runs.