“Several recent developments on the external front have provided room for greater optimism. Given the present state of the economy and its outlook – buoyant growth and benign inflation – I feel the current policy rate is appropriate,” he added.
The real gross domestic product (GDP) is estimated to grow at 7.4% in 2025-26 with private consumption and fixed investment contributing significantly.
Malhotra aso said that measures announced in the Union Budget would support growth. The central bank revised the growth projections upwards by 20 basis points each for the first quarter and second quarter of 2026-27 to 6.9% and 7% respectively.
Given this optimism, all MPC members voted in favour of continuing with the existing policy rate at 5.25%, especially before the release of the new GDP, CPI inflation and IIP series which will be derived from economic structures of the new base years.
“Having already lowered the policy rate by a cumulative 125 bps in four of the last six meetings; with transmission of the last rate cut announced in December 2025 still unfolding; and as the data from the new series is awaited for both GDP and inflation, another rate cut does not seem warranted at this point in time,” deputy governor Poonam Gupta said.
The new data will provide a clearer lens on the growth-inflation balance, external member Saugata Bhattacharya said. He however pointed out the lingering uncertainty on various geo-economic dimensions, which according to him makes a case for continuing with the neutral stance.
The MPC retained the neutral stance with five out of six members voted for it while Prof Ram Singh wanted the stance be changed from neutral to accommodative.
“Given the stable inflation and fiscal outlooks, a change in stance to “accommodative” will facilitate transmission of the rate cuts so far by putting downward pressure on market rates, yields for sovereign and corporate bonds and the rate spread between the two,” Singh argued, saying that there is room for more rate cuts.
“It seems the economy is entering a structural phase where a 7%-plus growth rate and moderate inflation can coexist. If anything, the output gap might still be negative. As I have argued in the past, a growth rate above 7.5% appears realistic without building up price pressure. These data points and developments suggest room for further rate cuts at an appropriate time,” he said.
The panel members said that sustained buoyancy in the services sector, GST rationalisation, healthy rabi prospects, monetary easing and benign inflation environment would support private consumption.
On the inflation front, the members ruled out the possibility of overheating.
The headline inflation measured by Consumer Price Index was at 1.3% in December as compared with the multi-year low of 0.7% seen in November. The food group continued to be in deflation. The headline inflation is projected to remain around the target of 45 during H1:2026-27.
“The impending release of the new CPI series is expected to provide greater clarity on inflation developments as the weighting diagram of the new index will reflect a more updated consumption basket,” Indranil Bhattacharya said.
Nagesh Kumar said that the benign inflation outlook and brightened economic growth prospects provides an opportunity for India to stay in the ‘goldilocks’ zone for longer.
In the recent past, the monetary policy actions were largely addressed to curb the inflationary pressures or to help support economic recovery.