The Reserve Bank of India's Monetary Policy Committee decided to keep interest rates unchanged at 5.25% in its February meeting, citing improved growth prospects from the recent India-US trade deal. This pauses a series of rate cuts from 2025 amid benign inflation. The decision reflects optimism about GDP growth and external sector stability.
The Reserve Bank of India (RBI) on February 7, 2026, announced its decision to maintain the policy repo rate at 5.25% and the stance at neutral during the Monetary Policy Committee (MPC) meeting. This follows cumulative rate cuts of 125 basis points in 2025, ending the easing cycle as India's economy shows resilience.
The decision is bolstered by an advancing GDP growth estimate of 7.4% for FY26 and projections of 7.2% for FY27, partly due to the interim India-US trade agreement. Under the deal, announced via a White House joint statement, the US will reduce reciprocal tariffs on Indian goods to 18% from 25%, covering items like textiles, apparel, and machinery. India, in turn, will eliminate or reduce tariffs on US industrial goods and agricultural products such as soybean oil and wine. India also intends to purchase $500 billion in US energy products, aircraft parts, precious metals, technology, and coking coal over five years.
Previous US tariffs, effective from September 2025, led to a 2.2% contraction in India's non-petroleum exports to the US during September-November 2025, impacting sectors like gems, jewellery, and textiles. Overall non-petroleum export growth slowed to 3.5% in that period from 7.3% earlier. The trade deal, alongside pacts with the EU, New Zealand, and Oman, is expected to boost exports and capital flows.
Inflation remains comfortable at 3.2% for Q4 FY26, with core inflation at 2.6% in December 2025. RBI projects inflation at 4% for FY27, assuming normal weather. RBI Governor Sanjay Malhotra stated, “Policy rates will continue to be at low levels for a long period of time (and) they will go down even further,” indicating readiness to support growth if needed.
Economists like Pranjul Bhandari of HSBC noted the pivot to steady rates, influenced by the budget and trade deals. Samiran Chakraborty of Citibank highlighted RBI's comfort with the inflation outlook despite base effects. The MPC emphasized sustained services buoyancy, investment momentum, and risks from global volatility in its resolution.
RBI also expressed satisfaction with external accounts, with forex reserves covering over 11 months of imports and no speculative pressures on the rupee. Liquidity in the banking system has tightened to Rs 0.7 trillion recently, partly due to forex interventions, but the trade deal may ease rupee support needs.
