RBI maintains status quo, conserves policy ammunition, Pg10

Key Highlights:

• The RBI maintained the status quo on policy interest rates in the February Monetary Policy Committee meeting, after cutting rates by 125 bps in 2025.
• India's GDP growth is estimated at 7.4% in FY26, with a potential boost from the India-US trade deal.
• India's non-petroleum goods export growth moderated to 3.5% in September-November 2025.
• Inflation is estimated at around 3.2% for the fourth quarter of FY26 and is expected to be at 4% in FY27.
• Average banking system liquidity lowered to Rs 0.7 trillion in the last two months.

Detailed Insights:

• The RBI's decision to maintain rates is supported by India's improving growth outlook and benign inflation.
• The India-US trade deal, with lowered tariffs, is expected to provide a growth boost of around 0.2 percentage points, potentially raising the GDP growth projection to 7.2% for FY27.
• Recent bilateral trade deals with major economies like the US and the European Union are likely to improve capital flows to the economy.
• Tightness in liquidity was partly due to the RBI's forex interventions, but this need may reduce with the India-US trade deal supporting the Indian rupee.
• Gsec yields have risen by 45 bps in the last eight months, widening the spread between the 10-year bond yield and the repo rate to 150 bps.
• The Centre’s large gross borrowing requirement for FY27 and high state-government borrowings are putting pressure on the gsec yields.
• The RBI may use OMO purchases to manage the demand-supply scenario in the government bond market.

Key Concepts Involved:

• Monetary Policy Committee (MPC): A committee that decides the policy interest rates to control inflation and promote economic growth.
• GDP (Gross Domestic Product): The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
• G-sec (Government Security): A debt instrument issued by the government to raise funds.
• OMO (Open Market Operations): The purchase and sale of government securities by the central bank to regulate the money supply and credit conditions.