RBI holds FY26 growth forecast at 6.5%, signals confidence amid global uncertainty

The Reserve Bank of India (RBI) has retained its real GDP growth forecast for FY26 at 6.5%, reflecting confidence in the Indian economy’s resilience despite global trade tensions and tariff uncertainties. Backed by strong domestic fundamentals and easing inflation, the RBI sees sustained momentum ahead, while maintaining a cautious policy stance to navigate evolving external risks.

The Reserve Bank of India (RBI) has maintained its real GDP growth forecast for the financial year 2025-26 at 6.5%, expressing continued confidence in the Indian economy despite mounting global uncertainties. The central bank’s assessment suggests that the domestic economy remains on a steady growth path, bolstered by supportive macroeconomic fundamentals and resilient consumer and business activity.

The quarterly projections for FY26 indicate consistent growth momentum, with GDP expected to expand by 6.5% in Q1, followed by 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. Looking ahead, the RBI estimates Q1 growth for FY27 at 6.6%, highlighting a positive economic trajectory.

According to the RBI, India’s economic performance is benefiting from a confluence of favorable factors. An above-normal monsoon season, easing inflationary pressures, improving capacity utilization, and strong financial conditions are contributing to the sustained momentum. Additionally, continued public investment and supportive policy measures – fiscal, regulatory, and monetary are helping fuel economic activity across sectors.

While the domestic environment appears robust, the RBI cautioned that several external risks could cloud the outlook. These include uncertainties surrounding global trade, fresh tariff announcements, and ongoing geopolitical tensions that may affect international demand and financial market stability. “Domestic growth remains resilient and is broadly evolving along the lines of our assessment,” the central bank noted. However, it acknowledged that “prospects of external demand remain uncertain amidst ongoing tariff announcements and trade negotiations.”

RBI policy stance: Steady rates, cautious optimism

In line with expectations, the RBI opted to keep the policy repo rate unchanged at 5.5% and maintained its neutral policy stance. This decision underscores the central bank’s approach of striking a balance between supporting economic growth and keeping inflation within manageable levels.

The central bank has revised its inflation projection for Q4 FY26 downward to 4.4% and forecasts inflation at 4.9% for Q1 of FY27. Notably, the inflation outlook was lowered to 3.1% from the earlier estimate of 3.7%, reflecting the central bank’s belief that price pressures are easing. However, it also emphasized that food price volatility could still pose risks, particularly in a global context where supply disruptions remain a concern.

Experts interpret the RBI’s stance as cautiously hawkish. Abhishek Bisen, Head of Fixed Income at Kotak Mahindra Asset Management, observed, “The commentary was neutral to hawkish with GDP growth maintained at 6.5% for FY26 and inflation projections indicating only a mild increase. With this backdrop, any potential rate cuts would only be considered if growth were to slow significantly.”

Similarly, Garima Kapoor, Executive Vice President and Economist at Elara Capital, noted that the pause in rate cuts was largely expected given the uncertainty in global trade and tariffs. “Despite a 60 basis points undershooting in the inflation forecast for FY26, the RBI viewed the trend as mainly due to fluctuations in food prices. The decision to hold rates steady could be seen as the Monetary Policy Committee keeping room for future action if trade tensions escalate,” she added.

From a broader perspective, the RBI’s cautious approach is intended to ensure financial stability while remaining prepared to respond flexibly should the economic environment deteriorate. The central bank also noted that the full impact of the 100 basis point rate cut implemented since February 2025 is still playing out in the economy.

The industry has responded positively to the central bank’s decision. Hemant Jain, President of the PHD Chamber of Commerce and Industry (PHDCCI), lauded the move, stating, “We appreciate the RBI MPC’s decision to maintain the status quo on the policy repo rate. This will support India’s growth journey amidst prevailing global volatilities.”

In conclusion, the RBI’s latest policy update highlights a resilient domestic economy backed by strong fundamentals. While growth prospects remain promising, the central bank is keeping a close watch on global developments and remains poised to act if needed. Its focus on inflation management, combined with a steady policy rate, suggests a carefully calibrated strategy to support sustainable growth without compromising macroeconomic stability.