Reserve Bank of India decides to keep repo rate unchanged at 5.25%

Reserve Bank of India decides to keep repo rate unchanged at 5.25%

Reserve Bank of India (RBI) has announced that the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 5.25%, adopting a 'neutral' policy stance.

Policy Rates and Monetary Policy Committee Stance: The Standing Deposit Facility (SDF) rate remains unchanged at 5%, while the Marginal Standing Facility (MSF) rate and the Bank Rate remain at 5.5%, leaving the liquidity corridor unchanged. The Reserve Bank of India clarified that future monetary policy decisions will depend on upcoming macroeconomic data. These will prioritize inflation trends based on the revised Consumer Price Index (CPI) series and the emerging growth outlook.

Inflation Outlook

¨     The projected level of Consumer Price Index (CPI)-based retail inflation for FY2025-26 (FY26) is 2.1%, which is within the Reserve Bank of India's tolerance band of 2-6%.

Inflation is expected to rise gradually due to adverse base effects, with projections as follows:

¨     Q4 FY26: 3.2%

¨     Q1 FY27: 4.0%

¨     Q2 FY27: 4.2%

According to provisional data, headline CPI inflation stood at 1.33% in December 2025, providing relief to policymakers amid global uncertainties.

Growth Projections:

Given the resilience of domestic demand, the RBI has revised its gross domestic product (GDP) growth projections.

¨     FY26: 7.4% (previously 7.3%)

¨     Q1 FY27: 6.9%

¨     Q2 FY27: 7.0%

Growth projections for the full fiscal year 2026-27 (FY27) will be released after the new GDP series is notified.

Liquidity and External Sector

¨     Systemic liquidity averaged around ₹75,000 crore on a daily basis, with the RBI actively engaged in liquidity management.

¨     Foreign exchange reserves stood at $723.8 billion at the end of January, strengthening external stability.

Regulatory and Developmental Measures

¨     The RBI has proposed compensation of up to ₹25,000 to customers for losses incurred due to fraudulent low-value digital transactions.

Draft guidelines will be issued on the following topics

¨     Mis-selling of financial products.

¨     Debt recovery procedures and recovery agents.

¨     Limiting customer liability in unauthorized electronic transactions.

To facilitate credit flow and ease of doing business

¨     The collateral-free MSME loan limit is proposed to be increased from ₹10 lakh to ₹20 lakh.

¨     Banks have been permitted to lend to REITs (Real Estate Investment Trusts) with prudential safeguards.

¨     Certain NBFCs have been exempted from seeking approval for registration and branch opening based on their size and activity criteria.

Monetary Policy Committee

¨     It was constituted in September 2016 under Section 45ZB (1) of the Reserve Bank of India Act, 1934 (RBI Act).

¨     The Urjit Patel Committee recommended the formation of the MPC.

¨     The primary role of the MPC is to determine the policy rate necessary to achieve the inflation target.

As per Section 45ZB (2) of the RBI Act, the MPC consists of

¨     The Governor of the RBI, who serves as the ex-officio Chairperson.

¨     The Deputy Governor of the RBI, who is responsible for monetary policy, as an ex-officio member.

¨     An RBI official nominated by the Central Board as an ex-officio member.

¨     Three persons appointed by the Central Government as members.

The members appointed by the Central Government hold office for a term of four years or until further orders, whichever is earlier. As per Section 45ZA of the RBI Act, the inflation target has been set at 4%, with an upper tolerance level of 6% and a lower tolerance level of 2%. If inflation remains above 6% or below 2% for three consecutive quarters, it is considered a failure to achieve the target.