The RBI has chosen to stay the course on interest rates, signalling confidence in economic growth and relief from recent global trade pressures. As expected, it kept its key policy rate unchanged, even as it highlighted benefits from a new trade agreement with the United States and comfortable inflation levels.
The RBI on Friday left the repo rate unchanged at 5.25 percent. (The repo rate is the interest rate at which the RBI lends money to commercial banks. Lower rates usually encourage borrowing and spending, while higher rates aim to control inflation.)
All six members of the Monetary Policy Committee (MPC), which decides interest rates, voted unanimously to hold rates steady. This decision was in line with market expectations, according to a Reuters poll.
The central bank also retained its policy stance at “neutral”. This means the RBI is not signalling an immediate rate cut or hike and will take future decisions based on incoming economic data.
RBI Governor Sanjay Malhotra said external risks to the economy have increased, but the recently concluded trade agreement with the US is a positive development. Earlier this week, India and the US announced a breakthrough deal under which US tariffs on Indian goods will be cut sharply—from nearly 50 percent to about 18 percent. (Lower tariffs make Indian exports cheaper and more competitive in the US market, supporting growth and investor confidence.)
India continues to be one of the fastest-growing major economies in the world. Growth is being supported by strong domestic demand, higher government spending on infrastructure, and a resilient services sector.
The economy is expected to grow 7.4 percent in the current financial year. The government’s chief economic adviser has projected growth of 6.8–7.2 percent for the next financial year.
Inflation, which measures the rise in prices, has remained well below the RBI’s medium-term target of 4 percent. Inflation is expected to average close to 2 percent this year. In December, retail inflation stood at 1.33 percent, the highest level in three months but still very low by historical standards.
The RBI has already cut interest rates sharply over the past year. Since February 2025, it has reduced rates by a total of 125 basis points. (One basis point is one-hundredth of a percentage point.) This marks the most aggressive rate-cutting cycle since 2019.
At its previous meeting in December, the RBI had cut rates by 25 basis points. With inflation under control and growth holding up, the central bank now appears comfortable pausing and assessing how the economy responds to earlier cuts.