The three-day meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) begins today, setting the stage for a closely watched policy announcement on Friday.
RBI Governor Sanjay Malhotra will unveil the outcome at the end of deliberations on Friday, with markets keenly scanning every word for clues on the central bank’s next move.
The policy review comes at a crucial juncture. Over the past year, the RBI has already delivered significant monetary easing, trimming the key short-term lending rate, the repo rate, by a cumulative 125 basis points since last February. The move signalled a calibrated shift towards supporting growth while ensuring inflation remains within the central bank’s comfort zone.
A Year of Easing: Where Things Stand
The last MPC meeting, held from December 3 to 5, resulted in a 25-basis-point cut in the policy repo rate, taking it down to 5.25 per cent. The decision was announced by Governor Malhotra on December 5, alongside an upward revision to the growth outlook.
At that meeting, the RBI projected India’s economy to expand by 7.3 per cent in the current fiscal year 2025-26, about half a percentage point higher than its earlier estimate. The upgrade reflected improved confidence in domestic demand conditions and underlying economic resilience.
With cumulative rate reductions already in place and growth projections revised upwards, the central question ahead of this week’s meeting is whether the RBI believes additional easing is warranted, or whether it will pause to assess the full impact of previous measures.
Inflation: Comfort With a Watchful Eye
Inflation remains the other key variable shaping policy thinking. The latest data released by the Ministry of Statistics and Programme Implementation (MoSPI) showed that year-on-year inflation based on the Consumer Price Index (CPI) stood at 1.33 per cent (provisional) in December 2025 compared to December 2024, reported ANI.
Headline inflation rose by 62 basis points compared to November 2025, driven mainly by higher prices in categories such as personal care and effects, vegetables, meat and fish, eggs, spices, pulses and products. However, despite the month-on-month uptick, inflation has stayed below the RBI’s medium-term target of 4 per cent for the 11th consecutive month.
For policymakers, this presents a relatively comfortable backdrop. Inflation below target provides room to manoeuvre, yet the recent firming in food and household categories suggests that vigilance remains essential.
Growth Momentum Holding Firm
India’s growth story continues to underpin the RBI’s policy framework. With the economy projected to grow at 7.3 per cent in FY 2025-26, domestic activity appears steady. Improved consumption patterns, robust credit flows and supportive financial conditions have reinforced confidence in the recovery.
At the previous policy review, the RBI’s upward revision to growth projections was interpreted as a sign that domestic demand has strengthened more than anticipated. This balance, solid growth combined with manageable inflation, gives the MPC flexibility, but also complicates the decision-making calculus.
Too aggressive a rate cut could risk reigniting price pressures later, while a pause might slow the momentum that has begun to build across sectors.
What Markets Are Watching
Bond markets, equity investors and currency traders will be closely monitoring the tone of the policy statement as much as the headline rate decision. With 125 basis points of easing already delivered since February, the transmission of lower rates into lending costs and broader financial conditions will also be under scrutiny.
Investors will look for clarity on whether the RBI views the current inflation trajectory as durable, and whether the growth upgrade signals confidence strong enough to withstand a pause in rate cuts.
Forward guidance, if offered, could shape market expectations well into the upcoming fiscal year.
For now, the RBI finds itself in a relatively enviable position: inflation below target for 11 consecutive months, growth holding above 7 per cent, and monetary easing already underway. Whether this week brings another rate adjustment or a strategic pause, the decision will shape borrowing costs, investment sentiment and the broader economic narrative in the months ahead.
