Amid heightened global uncertainties RBI lowers GDP growth for FY27 to 6.6%; retains key (repo) rate unchanged at 5.25%
The Reserve Bank of India (RBI) on Friday announced its quarterly monetary policy decision, maintaining the key rate (repo) at 5.25 per cent while adopting a cautious approach amid rising global uncertainties and inflationary pressures. The decision, taken unanimously by the Monetary Policy Committee (MPC) under Governor Sanjay Malhotra, reflects the central bank’s attempt to balance economic growth with price stability at a time when the global economy is witnessing heightened volatility due to geopolitical tensions and rising commodity prices.
The repo rate, which is the rate at which the RBI lends money to commercial banks, remains unchanged despite expectations in some quarters of either a rate hike due to inflation concerns or a rate cut to support growth. By maintaining the status quo, the RBI has signaled that it wants to closely monitor evolving domestic and international developments before making any major shift in monetary policy.
A key highlight of the policy announcement was the revision in India’s GDP growth forecast for FY2026-27. The RBI reduced its growth projection from 6.9 per cent to 6.6 per cent, citing concerns arising from geopolitical tensions in West Asia, elevated crude oil prices, global trade uncertainties and the possibility of weather-related disruptions affecting agriculture and consumption demand. According to the central bank, while domestic economic activity remains resilient, external risks have increased significantly in recent months.
The RBI noted that India’s economy continues to show strength in several areas including services, manufacturing activity and urban consumption. GST collections, digital transactions and infrastructure spending have remained robust, indicating that domestic demand is still supporting economic momentum. However, the central bank acknowledged that global supply chain disruptions and higher energy costs could weaken growth prospects in the coming quarters.
The revised quarterly GDP projections indicate growth of 6.6 per cent in the first quarter, 6.3 per cent in the second quarter, 6.5 per cent in the third quarter and 6.8 per cent in the fourth quarter of FY27. This reflects the RBI’s expectation that the economy will remain steady but may face intermittent pressures due to global headwinds and inflationary risks.
Inflation was another major focus of the policy announcement. The RBI raised its inflation forecast for FY2026-27 to 5.1 per cent from its earlier estimate of 4.6 per cent. Although inflation remains within the RBI’s tolerance band of 2-6 per cent, the central bank warned that rising global crude oil prices, higher logistics costs and imported inflation could push prices upward in the coming months.
Governor Sanjay Malhotra stated that while headline inflation remains below the upper tolerance limit, the risks are tilted upward because of global uncertainties and supply-side disruptions. The RBI also projected core inflation at around 4.7 per cent for the current fiscal year. The central bank highlighted that rising prices of LPG, metals, plastics and rubber products are contributing to inflationary pressures across sectors.
Quarter-wise inflation estimates released by the RBI show inflation at 4.2 per cent in Q1, 5.1 per cent in Q2 and 5.9 per cent in both Q3 and Q4 of FY27. This suggests that inflation may move closer to the upper threshold later in the year, especially if global oil prices remain elevated or food prices rise because of adverse weather conditions.
The RBI’s decision to maintain a “neutral” policy stance indicates flexibility for future action depending on incoming data. A neutral stance means the central bank is not committed either to rate hikes or rate cuts and will respond according to economic conditions. Economists believe the RBI’s approach reflects caution, as aggressive tightening could hurt growth while excessive easing could fuel inflation.
For borrowers, the unchanged repo rate means lending rates for home loans, vehicle loans and other floating-rate loans are likely to remain stable for now. Existing borrowers linked to repo-based lending rates will not see an immediate increase in EMIs. At the same time, deposit rates are also expected to remain broadly steady in the near term.
The RBI also underlined the importance of maintaining adequate liquidity in the banking system to support productive sectors of the economy. The central bank reiterated its commitment to ensuring financial stability while supporting sustainable growth. It announced measures to encourage foreign investments and strengthen external sector resilience amid ongoing global uncertainties.
Overall, the latest RBI monetary policy reflects a careful balancing act between supporting economic growth and containing inflation. While India continues to remain one of the fastest-growing major economies in the world, the RBI has recognised that global geopolitical tensions, volatile commodity prices and external financial uncertainties could affect the country’s economic trajectory. The decision to keep the repo rate unchanged at 5.25 per cent, revise GDP growth downward to 6.6 per cent and raise inflation expectations to 5.1 per cent demonstrates the central bank’s cautious but pragmatic approach toward maintaining macroeconomic stability in a challenging global environment.
