The Reserve Bank of India kept its repo rate unchanged at 5.25% on Friday, February 6, as expected, following the successful completion of the US-India trade deal. The RBI's six-member monetary policy committee voted unanimously to maintain the rate, with the monetary policy stance retained at 'neutral', suggesting rates will stay low for some time to come. As per The Economic Times, RBI Governor Sanjay Malhotra stated that external headwinds have intensified but the successful completion of the trade deal with the US augurs well for the economy, with inflation remaining benign. The central bank has now cut rates by a total of 125 basis points since February 2025, the most aggressive easing since 2019, with the latest cut of 25 basis points in December.
The breakthrough US-India trade agreement, announced earlier this week, includes a reduction in US tariffs on Indian imports from nearly 50% to 18%, easing a key pressure point for India's economy and markets. The RBI expects growth in the April to June 2026 quarter at 6.9% and 7% in the subsequent three months, while the government's economic adviser has forecast growth at 6.8% to 7.2% for next year. As reported by The Economic Times, Malhotra noted that the Indian currency appreciated by about 1.5 rupees per dollar after the trade deal announcement, with the rupee trading at ₹90.26 against the US dollar and staying higher. Recent trade agreements, including one with the EU and an impending one with the US, will support exports and growth, according to the RBI Governor.
Indian stock indices were down 0.5% each following the RBI's decision to hold rates unchanged, with India's benchmark 10-year bond yield moving higher by 5 basis points to 6.7% as the central bank did not announce any measures. The rupee's performance remains strong, trading near all-time highs supported by foreign bank dollar sales and reduced short bets. The rate panel will be guided by the outlook for growth and inflation going forward, with inflation in India expected to average close to 2% in the current financial year, below the central bank's target of 4%. In December, retail inflation stood at 1.33%, the highest in three months.
The latest Economic Survey noted that the rupee's valuation does not accurately reflect India's stellar economic fundamentals, stating that "the rupee, therefore, is punching below its weight." Finance Minister Nirmala Sitharaman during Budget 2026 presentation noted that the government has done everything within the country to ensure fundamentals are fine, but added that "the uncertainty globally is affecting" the rupee's movement against the US dollar. India remains one of the world's fastest-growing major economies, bolstered by strong domestic demand, public infrastructure spending and a relatively resilient services sector. The economy is expected to grow 7.4% in the current financial year, with the government's economic adviser forecasting growth at 6.8% to 7.2% next year.
Retail investors have demonstrated remarkable discipline through the flat market phase, with SIP inflows rising from ₹19,000-20,000 crore a month to over ₹31,000 crore a month as of December 2025. According to Mint Money, SIP investors have benefited from volatility, with 9-10% returns over the past one to one-and-a-half years despite the headline Nifty being marginally lower. This performance is visible in investor statements, even if it doesn't show up in index headlines, with retail investors continuing to buy when HNIs sold during market corrections. Sectors that underperformed earlier stand to benefit most from the trade deal, with pharmaceuticals, seafood, gems and jewellery, and energy sectors being clear beneficiaries.
