RBI’s wait-and-watch policy: Its rate status quo, neutral stance retention and forecast restraint all make sense

The improvement in the Indian economy’s growth impulses—growth estimates for the first and second quarters of the next fiscal year have been revised upwards marginally—is expected to continue. Inflation is also expected to remain well within the target range specified under the Flexible Inflation Targeting Regime.

And though there is a slight uptick in inflation estimates for both the first and second quarters of 2026-27, which have been revised upwards to 4% and 4.2% from the earlier estimates of 3.9% and 4% respectively, the MPC is clearly not losing any sleep over it as yet.

Part of the reason why the MPC held its horses for now is presumably uncertainty related to the new GDP series, whose base is slated to shift to 2022-23, as against the present 2011-12, as well as the new Consumer Price Inflation numbers, whose base is slated to move to 2024 from 2011-12. This is also why the governor held back GDP and inflation estimates for the next fiscal year.

The revisions are clearly playing on the MPC’s and Governor Sanjay Malhotra’s mind, going by the fact that he referred to them thrice in the course of the first 10 minutes of his speech. Apart from saying, “economic activity is expected to hold up well in 2026-27, and that “on the demand side, the momentum in private consumption is expected to sustain in 2026-27," the governor gave no guidance about future growth or inflation. “We are deferring the projections for the full year to the April policy as the new GDP series will be released later in the month," said Malhotra.

Governor Malhotra did, however, add a note of caution, saying, “spillovers emanating from geopolitical tensions, volatility in international financial markets and shifting trade patterns pose risks to the outlook."

On liquidity too, RBI preferred to strike a note of caution. Instead of the usual spate of announcements regarding Open Market Operations, the governor contented himself with saying, “The Reserve Bank will remain proactive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy and to facilitate monetary policy transmission."

For the ordinary citizen, the governor has made a couple of announcements to “enhance customer protection, advance financial inclusion, enhance flow of credit, strengthen UCBs, promote ease of doing business for NBFCs, and deepen financial markets."

Customers can expect greater protection against mis-selling and recovery of loans and engagement of recovery agents. That’s not all. In a bid to protect customers against unauthorised electronic banking transactions, RBI proposes to introduce a framework to compensate customers up to an amount of ₹25,000 for loss incurred in a small-value fraudulent transaction.

Medium, small and micro enterprises (MSMEs) can breathe easier. The limit for collateral-free loans to MSMEs is to be increased from ₹10 lakh to ₹20 lakh. Real estate sector players have got respite with banks being allowed to lend to Real Estate Investment Trusts (REITs), subject to prudential safeguards.

Urban co-operative banks and non-bank finance companies have also been given some respite. The governor has also promised a regulatory framework for derivatives on corporate bond indices and total return swaps on corporate bonds, following the announcement in the Union budget for 2026-27.

All in all, a cautious, watch-and-wait policy.

The author is a senior journalist and former central banker.