Inflationary Pressures Won't Trigger Rate Increases, Says RBI

RBI MPC Member Saugata Bhattacharya Sees Negligible Chances of Repo Rate Hike Amid Inflation Risks​

Mumbai, February 25: The possibility of a benchmark interest rate hike remains “negligible” despite emerging inflationary pressures, said Saugata Bhattacharya, an external member of the Monetary Policy Committee of the Reserve Bank of India, on Wednesday.

His remarks come at a time when geopolitical tensions, elevated crude oil prices, rising metal costs, and weather-related risks are seen weighing on the consumer price inflation outlook.

Repo Rate Outlook: No Immediate Need for Tightening​

Bhattacharya said he sees little likelihood of the central bank needing to raise the repo rate in the near term. Earlier this month, he and the other five members of the Monetary Policy Committee unanimously voted to keep the repo rate unchanged at 5.25 per cent. The RBI retained its neutral policy stance, indicating that rates are expected to remain low for some time.

The central bank has reduced policy rates by a cumulative 125 basis points since February 2025, marking its most aggressive easing cycle since 2019. A 25 basis point cut was delivered in December. However, the repo rate was kept unchanged in the August, October, and February 2026 monetary policy meetings.

Bhattacharya also stated that there are no visible signs of economic overheating, despite multiple stimulus measures introduced over recent quarters.

Inflation Forecast: CPI May Move Toward 4% in H1 FY27​

On inflation, Bhattacharya said that consumer price inflation is projected to rise toward the 4 per cent target in the first half of FY27.

He attributed the expected uptick primarily to base effects, as falling headline and vegetable inflation recorded in FY26 is likely to reverse. Precious metal prices are also expected to contribute to higher headline inflation. However, excluding these factors, underlying inflation is anticipated to remain benign.

Credit Growth Broadens Across Segments​

Highlighting trends in credit expansion, Bhattacharya noted a steady improvement in non-retail bank credit, which is increasingly flowing to large corporates.

Credit growth to large corporates rose to 7.5 per cent year-on-year in December 2025, compared to 5.5 per cent in December 2024. Lending to mid corporates continued at a strong 20 per cent year-on-year pace. Credit to MSMEs increased by 29 per cent year-on-year, up from 12 per cent in December 2024. Growth in credit to non-banking financial companies nearly tripled in December 2025.

Capacity utilization remains around 75 per cent, although certain sectors are operating at higher levels.

Growth Drivers: Consumption, Investment and Exports​

Bhattacharya said domestic consumption, which accounts for nearly two-thirds of GDP, will remain the primary engine of economic growth. However, both domestic and external demand will be required for sustained expansion.

He noted that the effects of fiscal, monetary, and liquidity stimulus are still unfolding. Data indicates a pickup in private investment in the first half of FY26, while foreign direct investment appears to be reviving.

High-frequency indicators also reflect resilience. Manufacturing and Services Purchasing Managers’ Indices in January remained reasonably strong. Merchandise exports have held firm despite trade frictions with the United States, and monthly e-way bills have reached record highs, signaling steady manufacturing activity.

Trade and Tariff Developments Remain in Flux​

Commenting on global trade developments, Bhattacharya said it is still early to assess the full impact of recent US rulings on reciprocal tariffs. Tariff competitiveness with key global peers remains uncertain.

He added that while the situation evolves, trade data suggests Indian exporters have largely diversified their destinations, with a few sectoral exceptions.

Revised GDP, CPI and IIP Series to Improve Policy Calibration​

On the upcoming revisions to the GDP, CPI, and Index of Industrial Production series, Bhattacharya said updated methodologies and fresh surveys will better reflect the current structure of the economy. The revised data series are expected to enhance the accuracy of macroeconomic assessment and support more precise policy calibration going forward.

With inflation risks monitored and growth indicators holding steady, the RBI’s policy stance remains guided by data, as rate hike prospects stay limited for now.