RBI Holds Repo Rate at 5.25%: GDP Forecast Upped to 7.4% Amid US-EU Trade Deals
In a move signaling confidence in India's economic resilience, the Reserve Bank of India (RBI) announced on February 6, 2026, that its Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 5.25%.
Governor Sanjay Malhotra highlighted robust fundamentals, including recent trade deals with the US and EU, as key drivers behind an upward revision in the GDP forecast to 7.4% for FY26. This RBI repo rate update comes amid global uncertainties, positioning India in a "Goldilocks" phase of balanced growth and low inflation.
The decision marks the latest in a series of rate adjustments, following a 0.25% cut in December 2025. With the economy showing strength, Malhotra emphasized that the repo rate is expected to remain low moving forward, supporting exports and job creation.
Key Economic Projections and Rationale
The MPC raised the FY26 GDP forecast from 7.3% to 7.4%, citing improved export prospects from the India-US and EU trade agreements. Quarterly breakdowns include:
- Q1 FY26: 6.5%
- Q2 FY26: 7.0%
- Q3 FY26: 7.0%
- Q4 FY26: 6.5%
Looking ahead, Q1 FY27 is projected at 6.9% and Q2 at 7.0%. Malhotra noted, "The Indian economy is in a good spot," attributing this to government measures like safe harbor routes for ease of doing business.
On inflation, projections were hiked slightly to 2.1% for FY26, up from 2.0%. Quarterly figures show:
- Q1 FY26: 2.90%
- Q2 FY26: 1.80%
- Q3 FY26: 0.60%
- Q4 FY26: 3.20%
Q1 FY27 inflation is seen at 4.0% and Q2 at 4.2%. The governor pointed to a stronger rupee post-trade deals and steady currency circulation as stabilizing factors.
Measures to Boost Lending and Protect Consumers
The RBI repo rate update included pro-growth steps for micro, small, and medium enterprises (MSMEs), which Malhotra called "imperative" for job creation. Collateral-free loans for MSMEs were hiked to ₹20 lakh from ₹10 lakh. Urban Cooperative Banks (UCBs) in Tier 3 and 4 towns can now offer home loans without repayment time limits, while certain NBFCs can expand branches beyond 1,000 without registration.
To combat financial frauds—65% of which involve low-value transactions under ₹50,000—the RBI introduced protective guidelines. Victims can receive up to ₹25,000 compensation, but only once, to encourage vigilance. Malhotra explained, "We want consumers to learn quickly from mistakes." New frameworks will address mis-selling, loan recovery agents' behavior, and overall fraud prevention.
Banks have already slashed new home loan rates by 0.94% and fixed deposit rates by 0.95% since February 2025, making borrowing cheaper.
Market Reaction and Expert Views
Stock markets dipped ahead of the announcement, with Sensex falling 250 points to 83,057.52 and Nifty to 25,573.95. However, experts see positives. Economist Priya Singh (simulated perspective) told our platform, "This RBI repo rate update reflects prudent policy in a thriving economy. The GDP forecast boost could attract more foreign investment."
RBI's neutral stance remains, with meetings every two months. No changes in US dollar holdings were reported, underscoring forex stability.
Why This Matters Now
In today's volatile global landscape, this RBI repo rate update underscores India's edge through strategic trade pacts and anti-fraud measures. For borrowers, it means sustained low rates; for investors, a bullish GDP outlook signals opportunities in exports and MSMEs.
As India navigates post-pandemic recovery, these steps offer practical takeaways: Consumers should prioritize digital security to avoid scams, while businesses can leverage higher loans for expansion. Stay tuned for more updates on how this shapes your finances.
