RBI Expected to Maintain Status Quo on Interest Rates in February Policy Review
The Reserve Bank of India (RBI) is widely anticipated to keep interest rates unchanged following the conclusion of its Monetary Policy Committee (MPC) meeting scheduled for February 6. Economists are predicting a pause in the central bank's monetary policy actions, driven by a combination of rising inflation pressures, a deceleration in economic growth, and impending revisions to key data series.
Economists Forecast Repo Rate to Remain at 5.25%
Kaushik Das, an economist with Deutsche Bank, stated, "We expect the RBI to pause in the upcoming 6th Feb meeting, maintaining the repo rate at 5.25%." He indicated that the monetary policy stance is likely to remain neutral, with communication expected to be broadly balanced. Das emphasized that liquidity management would be a primary focus for the RBI, particularly in light of recent bond purchases through open market operations and forex swap auctions announced since the December policy review.
Inflation Dynamics Limit Scope for Further Rate Cuts
The RBI had previously cut interest rates in December after the MPC placed greater emphasis on inflation falling below the lower bound of the flexible inflation targeting framework. However, with inflation now projected to move higher—including under the new base-year series set to be released from February 12—economists see limited room for additional monetary easing.
Inflation has shown an upward trend after reaching multi-year lows, rising to 0.71% in November 2025 from 0.25% in October. This increase has been fueled by persistent food price pressures and weaker core inflation trends, adding to the central bank's concerns.
Growth Outlook and Real Interest Rate Considerations
Economic growth is also expected to slow, with projections settling in the 6.7-7% range for FY27, which aligns closely with the Economic Survey's estimate of potential growth at 7%. Indranil Pan, an economist with Yes Bank, highlighted in a report that with the repo rate at 5.25% and inflation projected around 4%, the real interest rate of approximately 125 basis points appears reasonable.
Pan advocated for the RBI to remain on pause, retain a neutral stance, and preserve policy space in case of a growth slump, although he noted that such a scenario is not the base case. This cautious approach reflects the balancing act the central bank faces in supporting growth while containing inflationary pressures.
The upcoming MPC meeting will be closely watched by markets and policymakers alike, as the RBI navigates these complex economic challenges to ensure stability and sustainable growth in the Indian economy.
