Repo rate steady at 5.25%; FY26 GDP, inflation projections raised, Pg15

Key Highlights:

• The RBI's MPC has decided to keep the repo rate unchanged at 5.25%.
• FY26 GDP forecast increased to 7.4% from 7.3%.
• CPI inflation projection revised upwards to 2.1% from 2%.
• The MPC voted to keep the policy stance as 'neutral' by a 5:1 majority.

Detailed Insights:

• The repo rate remains unchanged, meaning EMIs on loans are unlikely to change.
• The last rate cut occurred in December, reducing the repo rate by 25 bps to 5.25%, bringing the total reduction in 2025 to 125 bps.
• RBI Governor Sanjay Malhotra anticipates the rate to remain at current levels for the next 9-12 months.
• High-frequency indicators suggest strong growth momentum in Q3 FY26 and beyond, supported by a trade deal with the EU and a potential trade agreement with the US.
• The RBI upgraded its real GDP growth estimate for FY26 to 7.4%, and for Q1 and Q2 of FY27 to 6.9% and 7%, respectively.
• CPI rose to 1.33% in December from 0.71% in November, with near-term food supply prospects remaining bright.
• The central bank revised upward its FY26 CPI inflation estimate to 2.1%, with the Q4 print now seen at 3.2%.

Key Concepts Involved:

• Repo Rate: The rate at which commercial banks borrow money from the RBI.
• GDP: Gross Domestic Product, a measure of a country's economic output.
• CPI: Consumer Price Index, a measure of inflation based on a basket of goods and services.
• Monetary Policy Committee (MPC): A committee of the RBI responsible for setting monetary policy in India.