RBI MPC Minutes: Trade Deals with US, EU to Lift Investment, says RBI Governor; Flags Nervous Global Sentiment

RBI MPC Minutes: Despite escalating geopolitical tensions and increasing trade friction, India continues to remain on-track in terms of economic growth and mild inflation, said RBI Governor Sanjay Malhotra, according to the minutes of the February 4-6 meeting of the RBI's Monetary Policy Committee.

The RBI MPC, on February 6, announced to keep the repo rate unchanged at 5.25% and maintain a neutral stance. However, the RBI MPC revised its GDP and inflation outlook for the upcoming quarters.

The RBI MPC increased projection of real GDP growth by 20 bps each in Q1 and Q2 of the year 2026-27.

While economic activity continued to remain robust, persistent geopolitical uncertainty continued to weighed on investors' sentiment. " In the backdrop of large fiscal stimulus and geopolitical uncertainty, global investor sentiments are nervous and financial markets remain volatile," stated Sanjay Malhotra.

Trade Deals With EU, US To Boost Investment

The recently concluded trade deal with the European Union and the United States will not only improve the current account balance, but will also give impetus to investment.

"The outlook for the ensuing year is also expected to be strong. Domestic drivers of growth continue to be robust. Several growth-supportive measures announced in the Union Budget should further boost growth. Moreover, the recent trade agreements /deals with our major trading partners - particularly, the European Union and the United States - have also considerably brightened the external sector outlook. These trade deals will not only strengthen exports and the current account but also bring in higher investments. " said Malhotra.

Gold, Silver Rally Fuelled Inflation

Precious metals rally in the last two to three months has significantly contributed to India's core inflation. However, the retail inflation continues to remain under the tolerance band.

"Low inflation continues to be a boon. Barring precious metals, inflation in most components of the CPI basket has remained low, with full year projection for 2025-26 at 2.1 per cent. Importantly, core inflation excluding precious metals (often known as core-core) remains at 2.3 per cent (as per the latest print for December 2025) and is projected to remain benign in the next two quarters (Q1 and Q2 of 2026-27)," said Poonam Gupta, RBI Deputy Governor.

The RBI MPC member had also voted to keep the repo rate unchanged at 5.25% citing that the impact of last rate cut (announced in December) still unfolding.

Change In Stance Will Facilitate Transmission of Rate Cuts

The RBI MPC maintained a neutral stance in its February meeting. However, RBI MPC member Ram Singh argued that given the stable inflation and fiscal outlook, "a change in stance to "accommodative" will facilitate transmission of the rate cuts so far by putting downward pressure on market rates, yields for sovereign and corporate bonds and the rate spread between the two."