The Reserve Bank of India left its benchmark interest rate unchanged at 5.25% on Friday, a decision that followed a 25 basis point reduction in December and matched market expectations amid persistent uncertainty about the near-term economic outlook.
In a livestreamed address, RBI Governor Sanjay Malhotra said the bank would retain a "Neutral" policy stance and described India’s economic position as being in a "good spot," while acknowledging elevated global uncertainties.
Governor Malhotra highlighted recent developments in trade policy as supportive for exporters. He pointed to positive momentum from India’s trade agreement with Europe and a tentative trade deal with the United States, both of which he said are expected to benefit Indian exporters in coming months.
Inflation outlook revised higher
The RBI signalled that inflation will rise more sharply than previously anticipated. Headline consumer price index inflation is now projected at 4% in the first quarter of fiscal 2027 and 4.2% in the second quarter, respectively - upward revisions from prior estimates of 3.9% and 4.0% for those quarters.
Separately, the bank forecasts CPI inflation to finish the current fiscal year ending March 31 at 2.1%.
Separately, India is preparing to change the method for calculating CPI inflation by updating the base year to 2024 in the coming months. The revision will reduce the weight of food and beverages - typically a volatile component - in the CPI basket.
Recent price and policy context
Indian CPI inflation fell sharply in late-2025, the RBI noted, attributing the reduction in part to pressure from higher U.S. tariffs and to declines in local food prices. The central bank reiterated that a sustained fall in inflation would be likely to lead to additional interest rate reductions after roughly 125 basis points of cuts since February 2025.
Despite the policy headwinds and global uncertainty, India’s growth performance remains strong. Gross domestic product growth is pegged at 7.4% in the current fiscal year.
Market reaction
Market moves were modest in early trade after the RBI announcement. The Nifty 50 index slipped 0.4%, while the rupee - measured as the USD/INR pair - depreciated by 0.1%.
The decision to hold the policy rate while revising inflation forecasts leaves the central bank positioned to monitor incoming data and adjust policy stance as warranted within its Neutral posture.