The Reserve Bank of India’s Monetary Policy Committee (MPC) will begin its three-day meeting on Wednesday to deliberate on the next bi-monthly monetary policy, against the backdrop of a growth-oriented Union Budget, subdued inflation, and the recently concluded India–US trade deal, which has eased prolonged external uncertainty.
Most economists believe the RBI is likely to pause further rate cuts, having already reduced the repo rate by a cumulative 125 basis points since February last year. With neither growth nor inflation showing signs of stress, a status quo on interest rates appears the most probable outcome.
However, a section of analysts still believes the central bank could consider one additional rate cut to further ease borrowing costs.
The policy decision of the six-member MPC, chaired by RBI Governor Sanjay Malhotra, will be announced on Friday.
Why a Rate Pause Looks Likely
Madan Sabnavis, Chief Economist at Bank of Baroda, said the central bank is expected to hold rates, which could also mark the end of the current rate-cutting cycle.
“The MPC looks likely to hold on to the repo rate, and this could also be the end of the rate-cutting cycle,” Sabnavis said.
He noted that bond yields indicate limited room for further easing, especially as the government’s net borrowing programme remains unchanged from last year. Additionally, tight liquidity conditions mean banks may struggle to transmit further rate cuts.
“Therefore, a pause looks most likely. The RBI will focus on liquidity management. While open market operations (OMO) and forex swaps will continue, there could also be consideration of a CRR cut if required,” he added.
Key Data Releases May Influence Future Policy
ICRA Chief Economist Aditi Nayar said a pause is warranted at this stage, particularly as the RBI awaits critical macroeconomic data.
She pointed out that:
- January 2026 CPI inflation data will be released on February 12, using 2024 as the new base year
- GDP data for FY24–FY26 will be released on February 27, with FY23 as the base year
“Together, these data series will help determine the prevailing growth-inflation mix and support the formulation of a fresh outlook,” Nayar said.
Inflation Benign, But RBI May ‘Keep Powder Dry’
Crisil Chief Economist Dharmakirti Joshi said the RBI has room to cut rates, given benign inflation and a non-inflationary Budget driven by fiscal discipline.
“The Budget remains non-inflationary, and the economy is doing well. Given these factors, the decision will be a close call between holding and cutting rates,” Joshi said.
“However, we lean towards a hold this time, as the RBI may prefer to keep its powder dry for future policy actions.”
Recent Policy Context
In December, the RBI reduced the repo rate by 25 basis points to 5.25%, after keeping rates unchanged in the previous two MPC meetings.