MPC Opts for Patience as Data Revisions Loom, Trade Deals Lift Growth Outlook

The Minutes of Monetary Policy Committee ‘s February 4–6 meeting reflect an improved macro backdrop compared to December. Growth prospects have strengthened, inflation remains contained, and India’s external position has improved following landmark trade agreements.  Many members chose to maintain status quo--citing the impending release of revised GDP and CPI series.

The most visible shift since the previous meeting has been on the external front. The conclusion of the EU–India free trade agreement and the announcement of a India-US trade deal have materially improved sentiment. For months, elevated US tariffs had clouded the outlook for labour-intensive exports. That overhang has now eased.

External member Nagesh Kumar described these breakthroughs as transformative. With preferential access to major European markets and restored competitiveness in the US, India has strengthened its position in global supply chain diversification. The agreements are expected not only to lift exports and the current account, but also to catalyse foreign direct investment, especially in manufacturing. Coupled with the Union Budget’s continued thrust on infrastructure, manufacturing incentives, services and digital capacity, the medium-term growth trajectory appears firmer.

Governor Sanjay Malhotra echoed same optimism, noting that real GDP growth for 2025–26 has accelerated from the previous year, with projections for early 2026–27 revised upward. Domestic demand remains resilient, services activity continues to anchor expansion, and manufacturing has shown signs of revival.

Saugata Bhattacharya added nuance to the growth assessment. He observed that high-frequency indicators signal resilience in economic activity. Bank credit growth to non-retail sectors has gradually increased, stable manufacturing capacity utilisation suggests underlying strength, and fiscal stimulus-led consumption appears to be supporting demand. Together, these developments may herald a gradual revival in private sector capital expenditure, an important missing piece of the investment cycle in recent years.

However, Bhattacharya also cautioned that the inflation trajectory warrants close attention. While headline inflation has remained soft, the policy resolution projects CPI inflation to rise toward the target in the first half of 2026-27. In his assessment, not just higher inflation but the risks of further inflationary pressures are gradually accumulating.

This interplay between improving growth signals and evolving inflation risks reinforced the case for patience.

A recurring theme across the minutes was the importance of awaiting the new GDP, CPI and IIP series. These revised datasets, based on updated base years and methodologies, are expected to better capture changes in production structures and consumption patterns.

Bhattacharya emphasised that the new series would offer a clearer lens on the growth–inflation balance. Calibrating policy just ahead of such structural revisions could risk misjudging the economy’s true position. Indranil Bhattacharyya similarly highlighted that the updated CPI basket would provide better insight into price formation dynamics, particularly after recent volatility in precious metals distorted headline readings.

On inflation, the committee broadly agreed that underlying pressures remain muted. Headline CPI was 1.3% in December 2025, and excluding gold and silver, core inflation remains low. While food prices are expected to normalise and base effects may lift headline inflation toward 4% in the first half of 2026–27, most members assessed that risks remain broadly balanced.

Deputy Governor Poonam Gupta underscored that the MPC has already delivered 125 basis points of easing, with the transmission of the December cut still unfolding. Acting again before assessing both full transmission and the revised data could be premature.

Even Ram Singh, who favoured a more growth-supportive stance, voted to keep the policy rate unchanged, though he advocated shifting to an accommodative stance to strengthen transmission.

The consensus, therefore, was shaped less by concern and more by sequencing. With growth prospects improving on the back of trade deals and fiscal support, and inflation expected to remain within target, the committee saw merit in preserving flexibility.

The MPC minutes shows rather than move pre-emptively, the MPC chose to wait for clearer signals, preserving flexibility to respond once the updated data provides a more reliable guide to the underlying macro balance.