The Reserve Bank of India’s (RBI) much-awaited monetary policy meeting just wrapped up, having assumed greater significance in the backdrop of US President Donald Trump’s stream of threats to “substantially” hike tariff rates on Indian goods in these 24 hours.
The third bi-monthly monetary policy for 2025-26 was unveiled by the central bank’s Governor, Sanjay Malhotra, in Mumbai, and various immediate issues came under the scanner – the decision on repo rate cut, GDP growth projection, monsoon and inflation.
A statement released by the bank noted that the GDP growth projection for the current fiscal year was retained at 6.5 per cent, even while the forecast for inflation was pegged at 3.1 per cent, lower than the previous 3.7 per cent.
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Taking into account the headwinds emanating from prolonged geopolitical tensions, global uncertainties, and volatility in the world’s financial markets pose risks to the growth outlook. Yet, the impact of the 100 bps rate cut since February, 2025, is still unfolding, said Malhotra.
"Growth is robust and as per projections, though it is below our aspirations, the uncertainties of tariffs are still evolving. Monetary policy transmission is continuing. The impact of the 100 bps rate cut since February 2025 on the economy is still unfolding," the Governor said.
Malhotra said he was upbeat about the domestic growth holding up and broadly evolving along the lines of assessment even though some high-frequency indicators showed mixed signals in May-June.
Additionally, an above-normal southwest monsoon, a buoyant services sector, and sustained growth in construction and trade in the coming months should act as buffers for the economy.
"Taking all these factors into account, real GDP growth for 2025-26 is projected at 6.5 per cent, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent," he said.
For Q1 of 2026-27, real GDP is projected at 6.6 per cent, with the risks evenly balanced out.
Rural consumption remains resilient while urban consumption revival, especially discretionary spending, is tepid, Malhotra said, and added that the supportive monetary, regulatory and fiscal policies, including robust government capital expenditure, should also boost demand.
Noting a benign inflation, the governor said the Consumer Price Index (CPI) declined for the eighth consecutive month to a 77-month low of 2.1 per cent in June, driven primarily by a sharp decline in food inflation.
"The inflation outlook for 2025-26 has become more benign than expected in June," he said.
The RBI said CPI inflation for 2025-26 is projected at 3.1 per cent with Q2 at 2.1 per cent; Q3 at 3.1 per cent; and Q4 at 4.4 per cent.
Retail inflation for Q1 2026-27 is projected at 4.9 per cent. The risks are evenly balanced.
As the Indian economy strives to attain its rightful place in the global economy, said Malhotra, stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey.
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