RBI Holds Repo Rate at 5.25%: What It Means for EMIs, FDs and Mutual Funds

The RBI-led Monetary Policy Committee (MPC) on Friday decided to keep the repo rate unchanged at 5.25%, in line with market expectations. The move reflects India’s resilient economic growth and manageable inflation, even as global uncertainties persist.

Neutral Policy Stance Continues

Announcing the decision, RBI Governor Sanjay Malhotra said the MPC unanimously voted to maintain the policy rate. As a result, the Standing Deposit Facility (SDF) remains at 5.00%, while the Marginal Standing Facility (MSF) and Bank Rate stay at 5.50%. The MPC also retained its neutral stance.

Global Risks, Domestic Confidence

The RBI noted that external challenges have intensified since the last policy review. However, successful trade agreements and strong domestic fundamentals continue to support India’s economic outlook, keeping near-term growth and inflation prospects positive.

India’s GDP Growth Outlook Remains Strong

According to the RBI, India’s economic activity remains resilient. The First Advance Estimates point to sustained momentum driven mainly by domestic demand, despite a challenging global environment.

GDP Growth Seen at 7.4%

The central bank expects real GDP growth of 7.4% in 2025-26, significantly higher than the previous year. This indicates that India’s economy remains on a steady and improving growth path.

Quarterly Growth Projections Revised Up

RBI revised its growth projections upward, with Q1 and Q2 of 2026-27 expected to grow at 6.9% and 7.0%, respectively. The risks to growth, the RBI said, are evenly balanced.

Retail Inflation Remains Under Control

On inflation, the RBI noted that headline CPI inflation stayed low in November and December, though it edged up due to easing deflation in food prices. Core inflation (excluding food and fuel) remained stable at 2.6% in December.

CPI Inflation Forecast

RBI now projects CPI inflation at 2.1% for 2025-26, with Q4 inflation at 3.2%. For Q1 and Q2 of 2026-27, inflation is estimated at 4.0% and 4.2%, respectively, with underlying pressures remaining muted.

New CPI Series to Impact Projections

With a new CPI series (base 2024=100) set to be released on February 12, 2026, the RBI has deferred full-year inflation projections for 2026-27 to its April policy review.

What It Means for Your Loan EMIs

The RBI has already cut the repo rate by 1.25% since early 2025, which has eased loan interest rates and EMIs. With the repo rate now unchanged, borrowers should not expect further EMI reductions in the near term.

Expert View on Borrowers

According to Adhil Shetty, CEO of BankBazaar, the pause shows RBI’s preference to observe inflation trends and policy transmission before making the next move. He noted that home loan rates remain competitive and borrowers can reduce interest burden by maintaining higher EMIs or shortening loan tenures.

Impact on Fixed Deposit Returns

A steady repo rate means FD rates are unlikely to rise sharply. Banks have already moderated deposit rates after earlier cuts. High-return FDs are becoming selective, while most mainstream offerings are stabilising within a narrower range.

FD Strategy for Investors

Experts suggest spreading FD investments across multiple tenures to lock in current rates. Senior citizen FD schemes continue to offer higher returns, though these benefits may gradually soften in a stable-rate environment.

What It Means for Mutual Funds

For mutual fund investors, stable policy rates support bond market stability, which is positive for medium- to long-duration debt funds and gilt funds over time.

Balanced Approach Still Works Best

According to Adhil Shetty, equity markets benefit from policy continuity and earnings visibility. A balanced investment strategy, combining SIPs in equities with selective debt exposure, remains the most effective way to navigate the current interest rate cycle.