The Monetary Policy Committee’s (MPC) unanimous decision to retain the repo rate at the existing level was largely expected. The MPC also continued with the neutral stance. With this, the terminal rate for FY26 stays at 5.25%.

On the macroeconomic assessment front, the domestic growth outlook remains positive although geopolitical headwinds have impacted the external sector. GDP growth at 7.4% in 2025-26 has been driven by private consumption and fixed investment. Furthermore, sustained buoyancy in services sector, goods and services tax rationalisation, and healthy rabi prospects lend confidence for a strong growth in FY27. Accordingly, real GDP growth projections for Q1 and Q2 FY27 are revised upwards to 6.9% and 7.0% respectively. The full-year FY27 forecast and inflation projections will be made available after the release of the new data by the Central Statistics Office this month. The successful completion of trade deals augurs well for the economic outlook in FY27.

On the inflation side, the FY26 story has been one of retreat. Headline consumer price index (CPI) inflation remained low at 0.7% in November and 1.3% in December 2025, with a recent uptick expected on account of rising metal prices. Better agriculture output and contained energy prices suggest that inflation will stay low even if it is rising from the current lows. The CPI inflation for FY26 is now projected at 2.1%, and for Q4 at 3.2%. The outlook for CPI inflation in Q1 and Q2 FY27 continues to be benign. CPI inflation for Q1 and Q2 FY27 are projected at 4.0 % and 4.2% respectively, with a momentum reinforced by precious metal prices.

On the development and regulatory policy front, the........

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