RBI Holds Rates Amid Inflation Fears, Crisil Sees Prolonged Pause

On Friday, the RBI kept its key policy rates unchanged and announced a fresh set of regulatory easing measures aimed at improving credit flow and easing business conditions, signalling a cautious stance amid rising inflation expectations and resilient growth.

The Monetary Policy Committee (MPC) unanimously voted to retain the repo rate at 5.25%, the standing deposit facility rate at 5.00%, and the marginal standing facility rate at 5.50%. In a 5-1 vote, the committee also decided to maintain its "neutral" policy stance, keeping future actions dependent on incoming data.

Crisil expected CPI inflation (for the 2011-12 series) to rise to 5% in the next fiscal, driven by the normalisation of food inflation from deflationary levels in the current fiscal. However, non-food inflation is expected to remain benign, supported by lower crude oil prices and the continued benefits of GST cuts through the first half of the year.

It said the RBI's support to the bond market will be pivotal as government borrowing rises. The Centre has projected Rs 17.2 lakh crore in borrowings for the next fiscal, up from Rs 14.6 lakh crore this fiscal. State borrowings, which added pressure on Gsec yields this fiscal year, need to be monitored in the next fiscal year as well.

RBI continued its regulatory rationalisation drive launched in October 2025. Key measures include allowing banks to lend to real estate investment trusts, doubling the collateral-free loan limit for micro, small and medium enterprises to Rs 20 lakh, and easing norms on unsecured and housing loans for urban cooperative banks.

The central bank also proposed exemptions for small non-banking financial companies from mandatory registration under specific conditions and relaxed rules for authorised foreign exchange dealers. Limits for foreign portfolio investors under the Voluntary Retention Route are set to be removed, bringing such investments under the general route.

Explaining the pause in rates, the MPC cited rising inflation and improving growth prospects. Consumer price inflation, though currently below the RBI's target, has risen in recent months and is projected to exceed 4% in the next fiscal year. The committee revised its inflation forecast for both the current fiscal year and the first half of the next one, largely due to higher precious metal prices and a low base effect in food inflation.

Growth projections were also nudged higher, with real GDP growth expected to remain robust on the back of strong consumption, sustained investment and government capital expenditure. The MPC, however, flagged uncertainty arising from the upcoming revision in CPI and GDP series and said it would reassess projections once the new data becomes available in April.

Beyond policy rates, the RBI has stepped up liquidity support through open market operations and foreign exchange swaps. Since December, it has conducted large government bond purchases and USD/INR swaps to ease liquidity pressures and contain elevated bond yields, even as systemic liquidity has fluctuated in recent months.

- ANI