Reserve Bank of India Governor Sanjay Malhotra said Friday that the central bank is holding the repo rate steady at 5.25% [2].
The decision comes as India navigates economic volatility caused by crude oil shocks. The RBI's stance reflects a balancing act between maintaining growth and controlling price rises in a challenging global environment.
During a post-monetary-policy press conference, Malhotra said that India is better placed to handle these shocks. He addressed the central bank's long-term goals, saying, "Our inflation target remains the same, it is 4% and is to be met over a period of time" [1].
However, the governor acknowledged the practical difficulty of maintaining that precise figure. Malhotra said it is "neither possible nor desirable to have inflation always at 4%" [1]. This admission follows a projection by the RBI that raised the inflation forecast for the fiscal year ending March 2027 to 5.1%, an increase of 50 basis points [3].
Economic growth forecasts have also been adjusted downward. The RBI cut its growth projection for the fiscal year ending March 2027 to 6.6%, down from a previous estimate of 6.9% [3]. These shifts indicate a cooling expectation for the economy despite the steady interest rate.
Malhotra said future rate decisions will remain data-dependent. The central bank aims to reassure markets regarding the balance-of-payments outlook, and the overall stability of the financial system.
This cautious approach aligns with previous statements from RBI Deputy Governor Poonam Gupta, who said the 4% target remains appropriate for the economic conditions in India [3].
“Our inflation target remains the same, it is 4% and is to be met over a period of time.”
The RBI is signaling a shift toward flexibility. By maintaining the 4% target while simultaneously raising inflation projections and lowering growth forecasts, the bank is preparing markets for a period where price stability may take a backseat to economic resilience. The decision to hold the repo rate suggests the bank is avoiding aggressive tightening that could further stifle the projected 6.6% growth.
