FX.co ★ India Holds Rates, Revises Up FY25/26 GDP Forecasts

The Reserve Bank of India (RBI) has decided to maintain its key repo rate at 5.25% during its February 2026 meeting. This follows a 25 basis points reduction in December, matching market predictions. The decision comes amid optimism about a more moderate inflationary outlook and enhancing growth prospects. Although India's annual inflation rate rose to 1.33% in December 2025, it remains comfortably within the RBI's target range of 2%–6%. GDP growth for the September quarter was exceptionally strong at 8.2%, marking the most significant expansion since the first quarter of 2024. The decision aligns with the Union Budget's increased government spending and recent US-India trade agreements, which have fueled expectations for robust economic growth. Looking ahead, the RBI has adjusted its GDP growth forecast for the fiscal year 2025/26 slightly upward to 7.4%, compared to the previous estimate of 7.3%. Furthermore, projections for GDP growth in the first half of FY27 have also been revised, with expectations of 6.9% growth in Q1 and 7.0% in Q2. Inflation for FY26 is anticipated to be around 2.1%.