Financial News: India Maintains Key Interest Rates; Unveils Measures To

India Maintains Key Interest Rates; Unveils Measures To Boost Dollar Inflows

(RTTNews) - The Reserve Bank of India left its key policy rates unchanged on Friday and unveiled a slew of measures to attract dollar inflows as the rupee continues to slide amid a mix of surging oil prices, foreign capital outflows from emerging markets and geopolitical risks triggered by the Middle East conflict.

The RBI Monetary Policy Committee, led by Governor Sanjay Malhotra, unanimously decided to hold the policy repo rate at 5.25 percent. The committee also decided to continue with the neutral stance.

The central bank had reduced the repo rate by a cumulative 125 basis points in the latest easing cycle that began in February 2025.

The standing deposit facility rate was retained at 5.00 percent and the marginal standing facility rate and the bank rate were maintained at 5.50 percent.

Despite the global shock, CPI inflation remained below the target, the bank observed. Although the baseline projections point towards headline inflation firming up towards the upper tolerance band in the current fiscal, the impact of the supply shock is expected to wane from March quarter, the MPC said.

Prices of several inputs increased due to the partial pass-through of high global crude oil prices and this could exert upward pressure on inflation in the coming months as firms pass on higher input costs, the bank assessed. Inflation outlook for the current year was revised up to 5.1 percent from 4.6 percent and core inflation projection was raised to 4.7 percent from 4.4 percent. Inflation forecasts are subject to upside risks due to global supply chain disruptions, global commodity price shocks, uncertainty over south-west monsoon and El Niño conditions, the RBI said.

Real GDP growth for 2026-27 was lowered to 6.6 percent from the previous forecast of 6.9 percent.

The RBI chief cited prolonged global supply chain disruptions, volatility in international financial markets, and weather-related shocks as downside risks to the domestic growth outlook.

The governor said the exchange rate policy remains unchanged and the RBI does not target any specific level or band. The exchange rate will be determined by market forces, he said.

"While our objective is not to resist market-driven adjustments, we will curb excessive volatility and prevent disorderly market movements," Malhotra added.

India's foreign exchange reserves provide a strong buffer against external shocks and RBI has a broad range of regulatory and market-based instruments to respond effectively, the governor noted.

"We remain vigilant and are fully prepared to do whatever it takes to preserve orderly market conditions," Malhotra said.

As part of measures to attract foreign capital, the RBI announced that all new issuances of 15-year, 30-year and 40-year government bonds will come under the Fully Accessible Route.

Also, limits pertaining to short-term investment, concentration and individual securities on foreign investment under the general route are being removed.

The central bank raised the limits for investment by Non-Resident Indians and Overseas Citizens of India in equity instruments traded on the stock market without registration from the regulator SEBI. This facility is extended to all individual persons resident outside India at par with NRIs and OCIs.

In order to incentivize external commercial borrowings by state-run companies, the RBI will provide a facility of concessional forex swap till September 30.

A similar facility for bearing the full hedging cost shall be provided till September 30 to banks for raising fresh Foreign Currency Non-Resident (Bank) deposits with maturities of 3 to 5 years.

Finally, the RBI proposed to restore the time for realization of export proceeds to nine months.

In the face of heavy capital outflow from the country, the government also unveiled measures to attract stable long-term foreign capital inflows.

The government decided to provide income-tax exemption on any interest or capital gains arising to Foreign Portfolio Investors and the Bank for International Settlements in respect of investments in government securities, with effect from April 1, 2026.

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