Core Stability: RBI Holds Stance as Inflation Anchors at 2.1%

Market snapshot: The Reserve Bank of India’s Monetary Policy Committee (MPC) concluded its February 2026 review by maintaining the status quo on the policy repo rate at 5.25%. Governor Sanjay Malhotra highlighted a 'Goldilocks phase' for the Indian economy, characterized by resilient growth and benign core inflation. While headline inflation saw a technical uptick in the final quarter of FY26 due to base effects, the underlying price pressures—specifically core inflation excluding volatile components like food and fuel—remain well-contained at approximately 2.6%. This stability provides the central bank with significant maneuverability to manage liquidity while supporting a revised GDP growth forecast of 7.4% for the current fiscal year.

Summary: The RBI maintained the repo rate at 5.25% with a 'Neutral' stance. FY26 inflation is projected at a comfortable 2.1%, though Q4 may see a technical rise to 3.2%. GDP growth was revised upward to 7.4%.

Key Takeaways

• Repo rate held steady at 5.25%; cumulative cuts of 125 bps since February 2025 remain in effect.
• FY26 headline CPI inflation projected at 2.1%, significantly lower than previous fiscal averages.
• Real GDP growth forecast for FY26 increased to 7.4% from 7.3%, driven by strong domestic demand.
• Introduction of Mission SAKSHAM to train 1.4 lakh Urban Cooperative Bank personnel.

SAHI Perspective

The RBI's decision to maintain a neutral stance despite low core inflation signals a cautious approach toward global volatility. By keeping rates steady at 5.25% after a cycle of easing, the central bank is prioritizing the anchoring of long-term inflation expectations at the 4% target. For investors, this environment suggests a peak in the rate-cutting cycle for now, shifting the focus to credit growth and liquidity management. The upward revision in GDP growth to 7.4% underscores India's divergence from global sluggishness, supported by robust trade agreements and increased government capital expenditure.

Closing Insight

The RBI's focus on 'muted' underlying pressures combined with higher growth forecasts paints a picture of macroeconomic resilience. As the new inflation series with base 2024=100 prepares for release on February 12, market participants should expect continued policy stability and a focus on financial inclusion through Mission SAKSHAM.

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