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The Reserve Bank of India's (RBI) decision to maintain the policy repo rate at 5.25 per cent and retain its neutral monetary policy stance is expected to support market sentiment in the near term, though economists believe the long-term outlook for equities will continue to depend on corporate earnings growth, investment activity and sustained domestic inflows.
Commenting on the policy, Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Group, said, "RBI has paused, but it is not yet at ease. By holding the repo rate at 5.25% and retaining a neutral stance, the MPC has signalled that growth remains resilient, while the room for further easing has narrowed." According to Hajra, an uneven monsoon, food price pressures and volatile crude oil prices have made the inflation outlook uncertain, prompting the central bank to adopt a wait-and-watch approach. "Hence, RBI will prefer patience over pre-emption, awaiting clearer evidence before moving again," he said. "For markets, policy stability is supportive, though the more durable equity case rests on improving earnings, strengthening investment activity and resilient domestic flows," Hajra added. The RBI, in its policy statement, noted that while headline inflation is expected to rise in the near term due to food and fuel prices, core inflation remains benign. It said greater clarity on the inflation trajectory and composition is needed before any further policy action, while reaffirming its commitment to keeping inflation aligned with the target. Madhavi Arora, Chief Economist at Emkay Global Financial Services, said the policy reflects a cautious but constructive approach. "The policy tone is cautious, albeit constructive, balancing uncertainties from the Middle East conflict, tighter global financial conditions and El Nino risks against resilient domestic growth and robust FCNR+ inflows," she said. She added that despite first-quarter inflation undershooting the RBI's earlier projections, the MPC has continued to highlight El Nino-related risks while reiterating that near-term price pressures are largely supply-driven unless they spill over into broader inflation. The RBI also observed that domestic economic activity continues to remain resilient, supported by strong manufacturing and services activity, healthy exports and robust domestic demand, even as risks from global trade uncertainty, geopolitical tensions and weather conditions continue to cloud the outlook. The central bank projected real GDP growth for 2026-27 at 6.7 per cent, with first-quarter growth at 7.0 per cent, while maintaining that risks to the growth outlook remain evenly balanced. (ANI)
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