RBI Holds Repo Rate at 5.25%, Revises FY27 Growth to 6.7% and Inflation to 5.0%

Monetary Policy Committee keeps rates unchanged while revising FY27 growth and inflation projections amid global uncertainty

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has unanimously decided to keep the policy repo rate unchanged at 5.25% while retaining its 'neutral' policy stance. The decision comes amid continued global economic volatility, with the RBI highlighting the resilience of the domestic economy and revising its FY27 growth and inflation projections.

The central bank raised its FY27 GDP growth forecast by 10 basis points to 6.7% and lowered its full-year inflation projection by 10 basis points to 5.0%, reflecting recent economic trends and inflation dynamics.

MPC Keeps Repo Rate Unchanged

The MPC unanimously voted to maintain the policy repo rate at 5.25% and continue with the neutral policy stance. According to the assessment, the decision was taken against the backdrop of ongoing volatility in the global economic environment.

The RBI noted that India's economy has continued to demonstrate resilience, supported by strong performance across several high-frequency indicators. It also observed that merchandise exports have remained steady, while services exports and remittances have continued to perform well.

FY27 GDP Growth Forecast Raised to 6.7%

The RBI revised its FY27 GDP growth projection upward to 6.7%, compared with 6.6% projected in the June 2026 policy meeting.

The revision follows stronger-than-expected domestic economic activity, supported by indicators including bank credit offtake, Index of Industrial Production (IIP) growth, Index of Services Production (ISP), and core sector output. Merchandise exports also showed improvement during the first quarter, led by higher non-petroleum exports.

RBI Growth Outlook (%)

The RBI also noted that global geopolitical developments, tariff-related uncertainties, and the progress of the monsoon remain important factors that could influence growth going forward.

Inflation Forecast Revised Lower

The RBI reduced its FY27 inflation forecast to 5.0% from 5.1% projected in June.

The central bank expects inflation to average 4.3% during the first half of FY27, compared with its earlier estimate of 4.7%.

According to the assessment, the food inflation outlook continues to face risks from a deficient and uneven monsoon. Food inflation is expected to peak at 7.5% in Q3 FY27 and average around 6% for the full year. Global crude oil prices are also expected to remain volatile because of geopolitical tensions.

The RBI projects core inflation to average 4.3% in FY27. While core inflation excluding precious metals remains benign at present, it is projected to align with overall core inflation from Q4 FY27. The RBI also highlighted potential second-round effects from higher food, fuel and input prices.

RBI Inflation Outlook (%)

RBI to Continue Supporting Liquidity

Banking system liquidity averaged around Rs 1 trillion in July and Rs 0.8 trillion in June, compared with Rs 3.9 trillion in April.

The report noted that tax-related outflows and the absence of Open Market Operations (OMOs) narrowed surplus liquidity. It also estimated that policy measures could add around Rs 4-6 trillion to core liquidity during the second half of FY27.

According to the assessment, the RBI could use liquidity management tools such as long-tenor Variable Rate Reverse Repo (VRRR) auctions or OMO sales if excess liquidity builds up. At the same time, higher currency in circulation during the festive season and the maturity of the RBI's forward short book of approximately USD 16 billion over the next three months could limit the increase in liquidity.

The weighted average call money rate has remained within the policy corridor around the repo rate.

Bond Market and Capital Flows

The 10-year Government Security (G-Sec) yield has declined by 20 basis points to 6.8% since the beginning of FY27.

The moderation has been supported by easing concerns over fiscal pressures following lower energy and fertiliser prices after the West Asia conflict. Policy measures, including the expansion of the Fully Accessible Route (FAR) bond universe, tax exemptions for FIIs and FPIs investing in government securities, and higher investment limits for NRIs and OCIs, are expected to support foreign investment in debt markets.

Foreign portfolio investment (FPI) inflows into debt increased to USD 7.8 billion during June-July, reversing net outflows of USD 0.9 billion recorded in April-May.

The assessment expects the 10-year G-Sec yield to average between 6.8% and 6.9% during FY27.

Outlook

The report expects domestic economic activity to remain relatively resilient during FY27 despite some moderation.

It notes that inflationary pressures remain largely supply-driven, although risks remain from food inflation, crude oil prices and geopolitical developments. Based on the current outlook, the assessment expects the RBI to maintain the policy rate during the current fiscal year unless inflation risks intensify.

The report estimates that the real policy rate could remain below its long-term average during Q2 FY27 to Q4 FY27, before converging by Q1 FY28 and entering the RBI's estimated natural rate band of 1.4% to 1.9% by Q2 FY28.

Globally, several central banks are expected to continue policy tightening. Financial markets are pricing in a policy rate hike by the US Federal Reserve around its January policy meeting, while the European Central Bank (ECB) and the Bank of Japan (BoJ) are also expected to raise interest rates further.

The report states that although tighter global monetary policy could put pressure on the rupee, measures aimed at attracting foreign capital are expected to improve India's external position, potentially resulting in a Balance of Payments (BoP) surplus in FY27 after deficits in the previous two years.