RBI monetary policy: Repo rate kept at 5.25% – what’s the GDP, inflation outlook & what does status quo mean for your EMIs, fixed deposits?

Rbi policy.jpg


RBI monetary policy: Repo rate kept at 5.25% - what’s the GDP, inflation outlook & what does status quo mean for your EMIs, fixed deposits?

The Reserve Bank of India (RBI)-led Monetary Policy Committee (MPC) on Friday kept the repo rate unchanged at 5.25% in line with expectations from market analysts and economists. The decision to hold the repo rate was driven by resilient GDP growth and benign inflation, amid global headwinds.“After a detailed assessment of the evolving macroeconomic conditions and the outlook, the MPC voted unanimously to keep the policy repo rate unchanged at 5.25 per cent; consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) remains at 5.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.50 per cent. The MPC also decided to continue with the neutral stance,” announced RBI governor Sanjay Malhotra.“The MPC noted that since the last policy meeting, external headwinds have intensified though the successful completion of trade deals augurs well for the economic outlook. Overall, the near-term domestic inflation and growth outlook remain positive,” he added. What does the RBI monetary policy say on India’s GDP growth and inflation outlook? What does the decision to keep repo rate at 5.25% mean for your loan EMIs, fixed deposit and mutual fund investments? We take a look:

India’s GDP growth outlook

According to RBI, on the growth front, economic activity remains resilient. The First Advance Estimates suggest continuing growth momentum, driven by domestic factors amidst a challenging external environment. The growth outlook remains favourable.The Indian economy continues on a steadily improving trajectory, with real GDP poised to register significantly higher growth of 7.4% in 2025-26, as compared to the previous year, it said.Real GDP growth projections for Q1:2026-27 and Q2 have been revised upwards to 6.9% and 7.0%, respectively . The risks are evenly balanced.The projections for the full year to the April policy have been deferred by RBI as the new GDP series will be released later in the month.

Retail Inflation Outlook

RBI noted that the headline CPI inflation remained low in November and December even as it firmed up by one percentage point in these two months. This increase was largely driven by the lower rate of deflation in the food group. Excluding gold, core inflation remained stable at 2.6 per cent in December.“In terms of the headline inflation trajectory, despite the anticipated momentum being muted, unfavourable base effects stemming from large decline in prices observed during Q4:2024-25 would lead to an uptick in y-o-y inflation in Q4:2025-26. Considering all these factors, CPI inflation for 2025-26 is now projected at 2.1 per cent with Q4 at 3.2 per cent. CPI inflation for Q1:2026-27 and Q2 are projected at 4.0 per cent and 4.2 per cent, respectively. Excluding precious metals, the underlying inflation pressures remain muted. The risks are evenly balanced,” RBI governor said.In view of the impending release of the new CPI series (base 2024=100) on February 12, 2026, similar to growth, RBI will now share CPI inflation projection for the full year 2026-27 in the April policy.

Impact on EMIs

RBI has cut the repo rate by 1.25% since early 2025. This has led to a similar lowering in loan rates and hence EMIs for borrowers. With the central bank maintaining the status quo on repo rate, EMIs are unlikely to come down further for now.Here’s a look at how much the 125 basis points cut has brought down your monthly EMIs and interest outgo on a Rs 50 lakh home loan:

Cumulative Impact of 125 bps repo rate cut on Rs.50 lakh loan
Original Loan Lower Rate, Lower EMI
Loan ₹ 5,000,000.00 ₹ 5,000,000.00
Tenor 240 240
Rate 8.50% 7.25%
EMI ₹ 43,391.16 ₹ 39,518.80
Total Interest ₹ 5,413,878.80 ₹ 4,484,511.82
Interest Saved ₹ 0.00 ₹ 929,366.98
EMI Saved ₹ 0.00 ₹ 3,872.36
Numbers approximate. Actual numbers may depend on lender’s unique policies. Source: Bankbazaar.com

According to Adhil Shetty, CEO, BankBazaar, a status-quo decision reinforces the central bank’s preference to monitor inflation trends, liquidity conditions and transmission before initiating the next phase of rate action. “The cumulative easing already delivered has largely flowed through to retail lending, making home loan rates relatively competitive compared to recent years. Even in a pause scenario, affordability conditions remain supportive, aided by steady spreads, lender competition and selective seasonal concessions. Borrowers can continue to optimize savings by retaining higher EMIs to compress loan tenures and reduce total interest costs,” he says.“Balance transfer opportunities and loan restructuring options also remain relevant for those seeking incremental efficiencies. Stable rates, combined with sustained housing demand and improved project execution, create a conducive environment for long-term home buyers, particularly end users focused on financial predictability rather than short-term rate movements,” he adds.

Impact on your Fixed Deposits

When the RBI cuts the repo rate, banks in turn lower the rates for fixed deposits. “A pause in the repo rate sustains the gradual moderation in deposit returns already underway following earlier policy actions. High-yield fixed deposits are becoming increasingly selective, with most mainstream offerings consolidating within a narrower band. While current liquidity conditions continue to support deposit mobilisation, the likelihood of materially higher FD rates emerging remains limited in a steady-rate environment,” Adhil Shetty says.“Investors assessing locking strategies may benefit from spreading allocations across multi-year tenures to preserve returns before further repricing takes place. Senior citizen premiums remain an advantage, though these too are expected to evolve as banks adjust to a stable but lower reference-rate regime,” he said.

Impact on Mutual Funds

According to Adhil Shetty, bond market participants may interpret this as supportive of stable-to-gradually-softening yields, creating a constructive environment for medium- to long-duration debt and gilt funds over time.“For mutual fund investors, a stable rate regime allows capital appreciation opportunities in debt portfolios without immediate yield compression, while equity markets benefit from policy continuity and earnings visibility. A balanced asset allocation approach—combining steady SIP flows in equities with calibrated duration exposure in debt—continues to remain an effective strategy for navigating evolving interest rate cycles,” he says.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *