RBI keeps policy rates unchanged

New Delhi: Interest rates on home, auto and other loans are unlikely to change in the near future as the Reserve Bank of India (RBI) on Friday decided to maintain status quo on policy rates and indicated a longer pause, saying trade deals with the US and EU would support growth, even as inflation is expected to remain low.

In its last bi-monthly meeting of the current fiscal, the RBI’s Monetary Policy Committee (MPC) unanimously decided to keep policy repo rate unchanged at 5.25%. 

Other policy rates including standing deposit facility rate, marginal standing facility rate and the bank rate have also been kept unchanged. These rates determine the lending and borrowing rates of commercial banks and other financial institutions.

The RBI’s six-member rate-setting panel also decided to continue with the “neutral” policy stance. This indicates that the central bank is not looking at increasing or lowering the policy rates in the upcoming review.

RBI Governor Sanjay Malhotra said the “policy rates will continue to be at low levels for a long period of time” and may go down even further.

The RBI has lowered policy repo rate by 125 basis points (1.25 percentage point) since February 2025. In the December policy review, it was lowered by 25 basis points. This has led to significant reduction in rate of interest charged by banks and other financial institutions on home, auto and other loans.

“The MPC noted that since the last policy meeting, external headwinds have intensified, though the successful completion of trade deals augurs well for the economic outlook. Overall, the near-term domestic inflation and growth outlook remain positive,” Malhotra said, explaining the rationale behind the MPC’s decision to keep the rates unchanged. The six-member MPC is chaired by the governor.

The RBI raised GDP growth forecast for the current fiscal to 7.4%, from its earlier estimate of 7.3%. The projection is in line with the National Statistics Office (NSO) estimate.

For the first two quarters of FY2026-27, it has pegged the growth at 6.9% and 7%, respectively. Consumer Price Index-based (CPI) retail inflation is projected at 2.1% in the current fiscal. 

Healthy growth prospects and higher inflation expectations for the next fiscal are likely to reduce the likelihood of rate cuts by the MPC. The committee may choose to save its policy rate ammunition for any unforeseen events, Crisil noted.

“With inflation remaining within the tolerance band and growth momentum continuing, the RBI’s neutral stance provides much-needed policy certainty for businesses and investors,” said Assocham President Nirmal Kumar Minda.

Policy highlights

Chief Financial Officer of South Indian Bank, Vinod Francis, said, “The upward revision in FY26 GDP growth, along with the RBI’s assessment that system-level parameters for banks remain sound, reinforces confidence in the sector’s ability to support sustained economic expansion.”

“For banks, a stable rate environment enables effective transmission of policy measures, disciplined balance sheet management, and calibrated credit growth across key segments,” Francis added.