RBI Holds Repo Rate at 5.25%: Governor Forecasts 4% Inflation Glide Path for FY27

Market snapshot: The Reserve Bank of India's Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, concluded its February 2026 review by keeping the policy repo rate unchanged at 5.25%. Maintaining a 'Neutral' stance, the central bank signaled confidence in the domestic growth trajectory while closely monitoring inflation revisions for the upcoming fiscal year. This decision follows a cumulative reduction of 125 basis points in the repo rate since February 2025, marking a transition into a 'wait-and-watch' phase as the economy absorbs past easing measures.

Summary: RBI maintains status quo on interest rates at 5.25% with a neutral stance, projecting CPI inflation to align with the 4% target by Q1 FY27.

Key Takeaways

• Repo rate remains at 5.25% after 125 bps of cuts over the previous year.
• CPI inflation for Q1 FY27 is projected at 4.0% and Q2 at 4.2%, reflecting a slight upward revision from earlier benign estimates.
• Real GDP growth for FY26 is estimated at a robust 7.4%, with FY27 projections ranging between 6.8% and 7.2%.
• Strategic India-US trade deal has significantly reduced tariffs, acting as a tailwind for export competitiveness and price stability.

SAHI Perspective

The RBI's move to pause at 5.25% suggests that the aggressive easing cycle has peaked. By projecting a 4% inflation handle for Q1 FY27, the central bank is anchoring market expectations toward its long-term stability mandate. Investors should note the 'Neutral' stance; it provides the RBI flexibility to manage liquidity through VRR (Variable Rate Repo) and OMO (Open Market Operations) without committing to further rate cuts in the near term. The transition to the new CPI base (2024=100) next week will be the next critical data pivot for fixed-income markets.

Closing Insight

A stable interest rate environment paired with controlled inflation projections creates a 'Goldilocks' scenario for Indian equities, though bond yields may face short-term pressure due to liquidity constraints.

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