Without a doubt, this RBI policy meeting has been historic. The Reserve Bank of India has emerged from its five-year hiatus, reducing the key policy repo rate by 25 basis points to 6.25%, down from 6.50%. After 2020, this is the first instance of the RBI making a rate cut. In May 2020, the Reserve Bank of India made its most recent cut to interest rates, reducing them by 40 bps. The Reserve Bank of India also adjusted its GDP and inflation targets for the upcoming financial year.
The RBI is certainly treading carefully as it seeks to balance growth and inflation. RBI Governor Sanjay Malhotra stated, “The volatility in global financial markets and ongoing uncertainties regarding global trade policies, along with adverse weather events, present risks to the growth and inflation outlook. This necessitates the MPC to stay vigilant. The RBI Governor emphasized the necessity of keeping the “right balance” and indicated that they anticipate a 6.7% GDP growth in FY26, fueled by consumption and investment amid difficult global economic uncertainties. The projected growth for the different quarters is as follows.
-Q1FY26 GDP is seen at 6.7%
-Q2FY26 GDP is seen at 7%
-Q3FY26 GDP seen at 6.5%
-Q4FY26 GDP seen at 6.5%
The projected GDP for FY25 is regarded as lower than previous targets, at 6.4%. The RBI states that robust household consumption, an enhanced investment cycle, and increased capacity utilization will fuel growth.
Even though headline inflation has begun to decrease from its notably high levels of 6.2% in October, the RBI anticipates that FY25 inflation will reach 4.8%. For FY26, the target is established at a slightly lower figure of 4.2%. The RBI estimates suggest that inflation will probably trend below 4% by the third quarter of FY26. With food prices softening and core inflation levels remaining moderate, efforts to control inflation are being aided. Nonetheless, the Reserve Bank remains concerned about climate risks and global financial volatility.
