RBI’s Policy Pause Comes with a Growth Warning: GDP Outlook Cut

New Delhi : The Reserve Bank of India (RBI) on Wednesday unveiled its first monetary policy decision for the financial year 2025–26 (FY26) against the backdrop of heightened global trade tensions and emerging macroeconomic headwinds. The three-day Monetary Policy Committee (MPC) meeting, chaired by newly appointed RBI Governor Sanjay Malhotra, concluded today, with the policy statement announced at 10 AM. Governor Malhotra is scheduled to address a post-policy press conference at 12 PM.

In a closely watched policy review, the MPC decided to maintain the benchmark repo rate at 6.25%, citing lingering global risks and a cautious domestic outlook. This follows a 25-basis-point cut in the February 2025 review—RBI’s first rate cut in nearly five years—signaling the beginning of a potentially accommodative cycle.

The decision to hold rates reflects the central bank’s calibrated approach amid concerns over slowing global growth, exacerbated by recent US tariff hikes on key imports. These protectionist measures have stoked fears of a broader trade war and are likely to weigh on emerging economies, including India, by dampening export demand and increasing global financial volatility.

Adding to the cautious tone, the RBI revised its real GDP growth forecast for FY26 downward to 6.5% from 6.7%, citing external uncertainties and the need to monitor the impact of monetary transmission. The central bank acknowledged resilience in domestic consumption and investment, but flagged risks from global spillovers, supply chain disruptions, and volatile commodity prices.

The repo rate, which currently stands at 6.25%, remains a critical tool in the RBI’s monetary arsenal. It is the rate at which the central bank lends short-term funds to commercial banks and directly influences borrowing costs for businesses and consumers. A pause in rate changes signals the RBI’s intent to support growth while keeping inflation expectations anchored.

Analysts had been divided over whether the RBI would opt for another rate cut or maintain a status quo, given the tightrope walk between supporting growth and ensuring price stability. Inflation, while moderating, remains close to the RBI’s upper tolerance band of 6%.