Update on RBI Policy

The Reserve Bank of India (RBI) has maintained a neutral stance in its latest policy update, keeping the repo rate unchanged at 5.25%, this was a unanimous decision by the MPC.

To support the financial system, the RBI intends to ensure sufficient liquidity and remain pre-emptive in its actions. GDP growth for FY26 is projected at 7.4%, bolstered by strong service sector performance and a supportive agricultural sector due to healthy rabi crops sowing and healthy reservoir levels. Additionally, GDP growth for Q1FY27 and Q2FY27 has been revised upward to 6.9% versus 6.7% earlier and 7.0% versus 6.8% earlier, respectively.

Private consumption momentum is expected to sustain, while services exports to remain resilient. The CPI for FY26 is projected at 2.1%, while projections for Q1FY27 and Q2FY27 have been revised slightly upward to 4% and 4.2%, primarily due to the prices of precious metals.

Core inflation is expected to remain range bound. A new GDP and CPI series is expected to be released later this month. View: We believe this is neutral for banks and NBFCs as far as the overall policy is concerned, though the RBI explicitly did not announce any OMO like measures to boost liquidity, as they want to ensure full transmission of measures taken earlier, but an assurance to pro-actively work towards ensuring sufficient liquidity is comforting.

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