RBI Maintains Repo Rate at 5.25%: Implications for GDP, Inflation, and Your EMIs and Fixed Deposits
The Reserve Bank of India (RBI) has decided to maintain the repo rate at 5.25%, a move that aligns with expectations from economists and market analysts. This decision comes amid a backdrop of resilient GDP growth and manageable inflation, despite facing global economic challenges. RBI Governor Sanjay Malhotra announced that the Monetary Policy Committee (MPC) unanimously voted to keep the rate unchanged, indicating a cautious yet optimistic outlook for the Indian economy.
India’s GDP Growth Outlook
The RBI’s assessment of the Indian economy reveals a robust growth trajectory. Recent First Advance Estimates indicate that economic activity remains strong, bolstered by domestic factors even as external pressures mount. The RBI projects a significant real GDP growth of 7.4% for the fiscal year 2025-26, an increase from the previous year. Additionally, growth projections for the first two quarters of 2026-27 have been revised upward to 6.9% and 7.0%, respectively. The RBI has deferred its full-year GDP projections until the release of a new GDP series later this month, but the overall sentiment remains positive, with risks to growth appearing balanced.
Retail Inflation Outlook
In terms of inflation, the RBI noted that the Consumer Price Index (CPI) inflation remained relatively low in November and December, despite a slight increase driven by reduced deflation in the food sector. Core inflation, excluding gold, held steady at 2.6% in December. The RBI anticipates that CPI inflation for the fiscal year 2025-26 will average around 2.1%, with an expected uptick to 3.2% in the fourth quarter. Projections for the first two quarters of 2026-27 are set at 4.0% and 4.2%, respectively. The RBI plans to provide a full-year CPI inflation projection in its April policy meeting, coinciding with the release of a new CPI series.
Impact on EMIs
The RBI’s decision to keep the repo rate steady means that borrowers can expect their Equated Monthly Installments (EMIs) to remain stable for the time being. Since early 2025, the RBI has reduced the repo rate by 1.25%, leading to lower loan rates and EMIs. However, with the current pause in rate adjustments, further reductions in EMIs are unlikely in the immediate future. According to Adhil Shetty, CEO of BankBazaar, the existing competitive home loan rates, combined with favorable market conditions, allow borrowers to optimize their savings by maintaining higher EMIs to shorten loan tenures and reduce overall interest costs. He also highlighted the relevance of balance transfer options and loan restructuring for those seeking additional efficiencies.
Impact on Fixed Deposits and Mutual Funds
The RBI’s decision to maintain the repo rate also affects fixed deposit rates. Typically, when the RBI cuts rates, banks follow suit by lowering fixed deposit returns. Shetty noted that the current pause in the repo rate is likely to sustain the gradual decline in deposit returns that has been observed. Investors are encouraged to consider multi-year tenures to secure returns before any potential repricing occurs.
For mutual fund investors, a stable interest rate environment could lead to favorable conditions for medium- to long-duration debt and gilt funds. Shetty emphasized that a balanced asset allocation strategy, which includes steady investments in equities alongside carefully chosen debt exposure, remains effective in navigating changing interest rate cycles. This approach allows for capital appreciation opportunities in debt portfolios while maintaining visibility in equity markets.
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