The Reserve Bank of India (RBI) on Friday projected real GDP growth of 7.4% for 2025–26 and revised the CPI inflation forecast to 2.1% for the fiscal year, while keeping the policy repo rate unchanged at 5.25%.

The RBI’s Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, retained a neutral stance, highlighting persistent global risks even as domestic growth and inflation dynamics remain favourable.

Amid heightened geopolitical tensions and elevated global uncertainty, the Indian economy remains in a strong position, supported by robust growth and low inflation, Malhotra said while announcing the policy decision.

“On growth, economic activity continues to be resilient. The first advance estimates point to sustained momentum driven by domestic demand, even as external conditions remain challenging. Real GDP growth for 2025–26 is now projected at 7.4%, while real GVA growth is estimated at 7.3%, supported by strong services sector performance and a revival in manufacturing activity,” he said.

The MPC also revised real GDP growth projections for Q1 and Q2 of 2026–27 slightly upwards to 6.9% and 7.0%, respectively, noting that risks are evenly balanced. Full-year projections will be provided in the April policy after the release of the new GDP series.

On inflation, Malhotra said price pressures remain well within the tolerance band and the outlook continues to be benign. High-frequency indicators suggest sustained growth momentum in the third quarter of the current fiscal and beyond.

Headline CPI inflation during November and December remained below the tolerance band. The MPC revised CPI inflation projections for Q1 and Q2 of 2026–27 marginally upwards to 4.0% and 4.2%, respectively, primarily due to higher precious metal prices, which contributed about 60–70 basis points to the revision. However, underlying inflation pressures remain subdued.

For 2025–26, CPI inflation is projected at 2.1%, with Q4 inflation estimated at 3.2%. Excluding precious metals, core inflation pressures remain muted, although risks persist from geopolitical uncertainty, energy price volatility and adverse weather events.

“The recent signing of a landmark trade agreement with the European Union and the prospect of a trade deal with the United States are expected to further support growth, which is likely to be sustained over a longer period,” Malhotra said.

On the global outlook, he noted that growth is expected to be marginally stronger than earlier projections, supported by technology-led investments, accommodative financial conditions and large-scale fiscal stimulus. However, escalating geopolitical frictions and rising trade tensions continue to disrupt the global economic order.

The committee observed that external headwinds have intensified since the last policy meeting, although the successful conclusion of key trade agreements augurs well for the medium-term outlook. Overall, the near-term domestic growth and inflation outlook remains positive.

The MPC reiterated that future policy actions will be guided by evolving macroeconomic conditions and incoming data, including the upcoming new GDP and CPI series.