RBI retains India’s GDP growth forecast for current fiscal at 6.5% amid geopolitical tensions

On Friday, RBI Governor Sanjay Malhotra projected the country’s real GDP growth to be 6.5 percent for the fiscal year 2025-26. This forecast was made during the announcement of the RBI’s bimonthly monetary policy following three days of discussions by the Monetary Policy Committee (MPC). This indicates that the central bank has maintained its prior projection for the country’s GDP growth.

“Real GDP growth rate for this year, 2025-2026, is projected at 6.5 per cent, continuing with our earlier forecast, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.4 per cent. The risks are evenly balanced,” Malhotra said.

The RBI reduced the inflation forecast to 3.7 percent from the previous estimate of 4 percent. The decrease was backed by hopes for a favorable monsoon. On Friday, the RBI reduced the repo rate by 50 basis points, exceeding expectations to stimulate growth that has dropped to a four-year low of 6.5 percent in FY25. After this reduction, the main policy rate fell to a three-year low of 5.5 percent, offering relief to borrowers of home, auto, and corporate loans. This is the minimum repo rate in three years.

The repo rate is the interest rate at which banks obtain loans from the RBI. The most recent instance it was below the current level was on August 5, 2022, at 5.40 percent.

RBI Governor Sanjay Malhotra stated that following a comprehensive evaluation of the changing macroeconomic and financial developments, along with the economic forecast, the MPC opted to lower the repo rate by 50 basis points.

Starting in February 2025, the RBI has lowered the policy rate by 100 basis points. In the earlier policy review in April, it had also decreased the repo rate by 25 basis points to 6 percent. He mentioned that following a 100 bps reduction in rapid succession, monetary policy has restricted capacity to promote growth. This marks the first instance since Covid-19 where the RBI has implemented three successive rate cuts, starting in February 2020.