RBI Monetary Policy 2026: Why India's central bank left rates unchanged

The Reserve Bank of India (RBI) kept its key repo rate ⁠unchanged at 5.25% on Friday, amid strong economic growth and reduced tariff pressures following a trade deal with the United States.

A breakthrough agreement between Washington and New Delhi, announced earlier this week, includes a reduction in U.S. tariffs on Indian imports from nearly 50% to 18%, easing a key pressure point for India's ‌economy and markets.

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The monetary policy stance was retained at "neutral", suggesting ‌rates will stay low for some time to come.

Why RBI kept rates unchanged

External headwinds have intensified but the successful completion of the trade deal with the US augurs well for the economy, Reserve Bank of India Governor Sanjay Malhotra said in his policy statement. Inflation remains benign, he added.

Amidst heightened geo-political tensions and elevated uncertainty, the Indian economy is in a good spot with strong growth and low inflation, the RBI chief said. "Inflation remains below the tolerance band, and its outlook continues to be benign. High frequency indicators suggest continuation of the strong growth momentum in Q3:2025-26 and beyond."

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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, he said.

"Global growth, supported by tech-investments, accommodative financial conditions and large-scale fiscal stimulus, is expected to be marginally stronger in 2026 than projected earlier. However, the confluence of escalating geopolitical frictions and rising trade tensions is unravelling the existing world economic order."

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Inflation outcomes are heterogeneous across jurisdictions – remaining above target in most major advanced economies – prompting a divergence in monetary policy actions as central banks near the end of their current easing cycles, said Malhotra.

"Against a global backdrop that has increasingly become more cautious, bond market sentiments remain bearish reflecting fiscal sustainability concerns. However, equity markets, driven by tech stocks, remain upbeat."

Experts decode RBI's decision

"We could see an extended pause on the policy rate going forward and see 5.25% as the terminal rate," said Sakshi Gupta, Pricipal Economist, HDFC Bank.

"RBI re-emphasised the commitment towards providing sufficient liquidity for transmission. Given the durable liquidity injected over the last few weeks, we do not anticipate the need for further durable liquidity injections ‌in the fourth quarter ‍of FY26."

Garima Kapoor, economist, institutional equities at Elara Securities, said, focusing on effective ‍transmission of rate cuts already taken and being encouraged by a ‌healthy growth trajectory in the economy, RBI's MPC decided to keep repo rate unchanged.

"With inflation expected to rise hereon amid normalisation of food prices and adverse base effect, the scope for further rate cuts has shrunk."

"A shock to growth-inflation balance would only propel another rate cut. For now, we expect a prolonged pause from the RBI."