RBI keeps interest rates on hold after US trade deal boosts outlook

Mumbai: The Reserve Bank of India kept its benchmark interest rate unchanged on Friday, as expected, as inflation remained at manageable levels and growth concerns eased following increased government spending in the Budget and reduced tariff pressures after a trade deal with the United States.

The central bank's six-member Monetary Policy Committee (MPC) voted unanimously to keep the repurchase or repo rate at 5.25 per cent. RBI retained its neutral policy stance, signalling that it is likely to remain on hold for now.

US President Donald Trump earlier this week announced a cut in tariffs on Indian goods to 18 per cent from 50 per cent, easing a key pressure point on India's economy and markets.

Announcing the decisions of the MPC, RBI Governor Sanjay Malhotra said external headwinds have intensified, but the successful completion of the trade deal with the United States bodes well for the economy.

The RBI has cut rates by a total of 125 basis points since February 2025, marking its most aggressive easing cycle since 2019. It reduced rates by 25 basis points at its previous meeting in December.

While inflation remains benign, economic activity remains resilient.

"Amidst heightened geo-political tensions and elevated uncertainty, the Indian economy is in a good spot with strong growth and low inflation. Inflation remains below the tolerance band and its outlook continues to be benign," he said.

"With the signing of a landmark trade deal with the European Union and the US trade agreement in sight, growth momentum is likely to be sustained for a longer period."

Inflation is expected to average close to 2 per cent in the current financial year, below the central bank's target of 4 per cent. GDP growth for the current fiscal year ending March 31 is forecast at 7.4 per cent.

The RBI raised real GDP growth projections for the first two quarters of the next fiscal to 6.9 per cent (April-June) and 7 per cent (July-September) but deferred full-year projection to April as the new GDP series will be released later this month.

Announcing additional measures, Malhotra said RBI will issue three draft guidelines relating to mis-selling, recovery of loans and engagement of recovery agents, and on limiting liability of customers in un-authorised electronic banking transactions.

"It is also proposed to introduce a framework to compensate customers up to an amount of Rs 25,000 for loss incurred in small-value fraudulent transactions," he said.

It will also publish a discussion paper on possible measures to enhance the safety of digital payments. Such measures may include lagged credits and additional authentication for specific classes of users like senior citizens.

He also proposed doubling the limit for collateral-free loans to MSMEs Rs 20 lakh and allowing banks to lend to REITs to promote financing to the real estate sector.

Also, NBFCs having no public funds and customer interface, with asset size not exceeding Rs 1,000 crore, are proposed to be exempted from the requirement of registration.

The requirement for certain NBFCs to obtain prior approval to open more than 1,000 branches is also to be dispensed with.

For financial markets, Malhotra said RBI proposes to remove the limit of Rs 2.5 lakh crore for investments under the Voluntary Retention Route (VRR). Investment through the VRR in each category of securities will be subject to the investment ceiling for the respective category under the General Route.

"The Indian economy continues to register high growth despite a challenging external environment clouded by geo-political uncertainties. Benign inflation provides the leeway to remain growth-supportive while preserving financial stability. We remain committed to meet the productive requirements of the economy and sustain the growth momentum," he added.

Commenting on the MPC decisions, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, "The MPC delivered completely in line with expectations across rates and stance. The inflation outlook in H1,FY27 has been revised up marginally."

Inflation projection for H1,FY27 has been revised slightly higher to 4.1 per cent from 3.95 per cent but inflation outlook has remained benign.

"While uncertainty remains on the growth-inflation figures as we await the new series, the uptick in commodity prices and weaker currency may pose upside risks to inflation. We therefore see limited room for additional easing on the repo rate front, with RBIs focus expected to be on ensuring stability on the liquidity front in the year ahead," Bhardwaj said.