India Keeps Key Rate Steady After US Trade Deal Boosts Outlook

The Reserve Bank of India (RBI) maintained its repo rate at 5.25% during its latest monetary policy meeting. The decision, announced on February 6, 2026, aligns with expectations from economists and reflects the current economic climate of low inflation and strong growth. Governor Sanjay Malhotra emphasized that the neutral policy stance will likely continue for the near term. The move comes amid a significant shift in trade dynamics following a new agreement with the United States.

The U.S. reduced tariffs on Indian imports from nearly 50% to 18%, easing a long-standing trade dispute between the two nations. The deal, announced earlier this week, is expected to boost India's export sectors and improve its trade competitiveness. The agreement also includes commitments from India to reduce its reliance on Russian oil and increase purchases of U.S. energy and agricultural products.

Market participants and analysts have welcomed the deal as a win-win scenario. The reduction in tariffs is expected to support India's fastest-growing major economy and improve market sentiment for both domestic and international investors.

Why the Move Happened

The RBI's decision to hold rates steady was driven by the improved economic outlook. Reduced trade tensions with the U.S. have lifted uncertainty, allowing the central bank to maintain a neutral stance while continuing to monitor inflation and growth trends. India's economy is projected to grow 7.4% in the current financial year, with expectations of 6.8%–7.2% next year.

The recent trade deal with the U.S. is seen as a major factor in this positive outlook. Lower tariffs should improve the competitiveness of Indian exports in the U.S. market, which is a key destination for Indian goods. Export-oriented sectors such as IT, pharmaceuticals, and engineering goods are expected to benefit the most.

How Markets Responded

Indian equity markets responded positively to the news. The GIFT Nifty surged by about 600 points following the trade deal announcement, signaling stronger risk appetite among investors. The rupee also gained strength against the dollar, recovering from its position as Asia's worst-performing currency in January.

Analysts have noted that the trade deal removes a significant overhang on the rupee and equity markets. The resolution of trade tensions has also improved investor confidence, potentially attracting more capital inflows into the country.

Goldman Sachs has upgraded its growth forecast for India, raising its 2026 GDP growth projection to 6.9% from a previous estimate. The firm attributed the upward revision to lower trade policy uncertainty and the potential for increased private investment.

What Analysts Are Watching

Market experts are now closely monitoring how the trade deal translates into actual economic outcomes. While the initial reaction has been positive, the long-term benefits will depend on the effective implementation of the agreement and sector-specific responses.

The RBI is also expected to maintain a neutral stance in the near term, with the possibility of further rate cuts if inflation remains subdued and growth continues to exceed expectations. The central bank has already cut rates by 125 basis points since February 2025, the most aggressive easing since 2019.

In addition to trade developments, the Indian government's recent budget measures aimed at boosting manufacturing and infrastructure spending could also support growth and inflation control. The budget emphasized long-term strategic goals, including the development of high-speed rail corridors and dedicated freight networks.

The success of the U.S. trade deal in driving economic performance will be a key focus for investors. The reduction in trade barriers should help Indian firms access global markets more effectively, reinforcing the country's position as a manufacturing hub. Analysts also believe that the deal may lead to further improvements in India's integration into global supply chains.