Trade deals to support India's growth despite global risks: RBI governor

The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday said India’s recent trade agreements are expected to support economic growth and exports, even as global uncertainty and geopolitical tensions rise.

Announcing the outcome of the Monetary Policy Committee (MPC) meeting, Malhotra said that the committee has decided to keep the repo rate unchanged at 5.25 per cent and continue with a ‘neutral’ policy stance.

The MPC meeting was held between February 4 and 6.

Trade agreements to sustain growth momentum

Malhotra said India’s economy remains on a strong footing despite global challenges, helped by stable inflation and steady growth. “Amidst heightened geo-political tensions and elevated uncertainty, the Indian economy is in a good spot with strong growth and low inflation,” he said.

He added that growth is likely to remain strong in the coming quarters, supported by recent trade developments. “With the signing of a landmark trade deal with the European Union and the US trade agreement in sight, growth momentum is likely to be sustained for a longer period,” the RBI Governor said.

Global risks rising, outlook mixed

He said that global growth is expected to be slightly stronger in 2026 on the back of technology investments, easy financial conditions and fiscal support. However, rising geopolitical frictions and trade tensions are creating fresh risks.

He further said that inflation remains above target in many advanced economies, leading to differences in monetary policy actions across countries. While bond markets remain cautious due to fiscal concerns, equity markets, especially tech stocks, continue to perform well.

"The MPC noted that since the last policy meeting, external headwinds have intensified through the successful completion of trade deals augurs well for the economic outlook," he said.

Domestic demand, investment to remain strong

The RBI Governor said recovery in urban consumption is expected to strengthen further, helped by GST rationalisation and easier monetary conditions.

High capacity utilisation, faster bank credit growth, favourable financial conditions and continued government spending on infrastructure are likely to boost investment activity, he said. Measures announced in the Union Budget are also expected to support growth.

Malhotra said that the India-EU free trade agreement and the proposed India-US trade deal, along with other trade pacts, will support exports over the medium term.

Exports resilient but risks remain

While services exports are expected to remain strong, Malhotra cautioned that geopolitical tensions, financial market volatility and changing trade patterns pose risks.

Despite these challenges, the MPC has revised India’s growth outlook upwards. Real GDP growth projections for Q1 and Q2 of 2026-27 have been raised to 6.9 per cent and 7.0 per cent, respectively.

External sector remains comfortable

He further said that global trade has remained relatively robust despite uncertainty. India’s merchandise exports grew by 1.9 per cent year-on-year in Q3 of 2025-26, while imports rose faster.

However, strong services exports and healthy remittances are expected to keep the current account deficit “moderate and sustainable”.

He said India’s efforts to sign bilateral and regional trade agreements will help boost trade and investment, diversify export markets and integrate the country into global value chains.

As of January 30, 2026, India’s foreign exchange reserves stood at $723.8 billion, providing import cover for over 11 months. “Overall, India’s external sector remains resilient. We are confident of meeting our external financing requirements comfortably,” the RBI Governor said.