RBI Signals Rates to Stay Below Repo as Growth Wins Over Inflation

Traders are watching the RBI's policy path as the first signal in the monetary trajectory. Mumbai: The Reserve Bank of India is expected to keep overnight rates — the call rate and treps — below the policy repo rate to buttress growth amid an uptick in imported inflation risks. This approach suggests policymakers may hold the policy rate at 5.25% while focusing on sustaining momentum rather than chasing a near-term price spike.

Analysts say the stance makes sense: tightening during a supply shock could aggravate the slowdown. The RBI has already infused durable liquidity through bond purchases, and supportive moves from the government, including GST rate cuts to support consumption, are seen as reinforcing the growth impulse. The policy tilt is described as countercyclical, aiming to avoid derailing growth while inflation remains a concern.

Inflation clocked at about 3.21% in February, still below the 4% tolerance band, but higher oil prices are expected to add to pricing pressures. The RBI could overlook short-term inflation prints if the medium-term path remains supportive of growth. That balancing act is central to the policy conversation.

Global banks have begun adjusting their growth forecasts for India. Goldman Sachs trimmed its 2026 GDP growth outlook to about 5.9%, underscoring the inflation-growth trade-off and the external headwinds facing the Indian economy. In this framework, the inflation-target regime—maintained at 4% with a 2-6% band for 2026-2031—continues to anchor policy, offering room to maneuver while prioritizing price stability.

In sum, the RBI’s strategy to keep overnight costs below the repo rate is designed to nurture growth without letting inflation run away, signaling a measured, growth-friendly path amid a volatile global backdrop.

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