RBI Monetary Policy Committee Expected to Maintain Status Quo in February Meeting
The Reserve Bank of India's Monetary Policy Committee is widely anticipated to keep the key policy rate unchanged during its upcoming meeting scheduled from February 4 to 6, 2026. Economists and banking experts suggest that the MPC will likely maintain the repo rate at its current level of 5.25 percent, following a series of reductions throughout 2025.
Recent Rate Cuts and Current Expectations
In its December monetary policy announcement, the six-member committee implemented a 25 basis points reduction in the repo rate, bringing it down to 5.25 percent. This move contributed to a cumulative decrease of 125 basis points throughout 2025. However, financial institutions and economic analysts now believe this cycle of rate cuts has reached its conclusion, at least temporarily.
Madan Sabnavis, Chief Economist at Bank of Baroda, emphasized that "with the new series on CPI and GDP to be released this month, where inflation and GDP growth could be higher than present levels, it does look like the MPC will pause on rates." This sentiment is echoed across the banking sector, with most experts anticipating a prolonged period of monetary policy stability.
Inflation Concerns and Policy Stance
Yes Bank highlighted in a recent report that the December rate cut occurred when the MPC gave greater consideration to inflation falling below the lower threshold of the Flexible Inflation Targeting framework. "With inflation likely to move higher, there is little reason for moving in with further cuts," the report stated, adding that "we think we have seen the last of the rate cuts in this cycle and should expect a long pause."
Economists also predict the MPC will maintain its neutral policy stance in the forthcoming announcement, reflecting a balanced approach between supporting economic growth and controlling inflationary pressures.
Liquidity Management Focus
Beyond interest rates, attention is shifting toward liquidity measures. Gaura Sen Gupta, Chief Economist at IDFC FIRST Bank, noted that "the RBI's focus will be on liquidity infusion, as system liquidity continues to remain low." Banking sector liquidity has remained constrained for several months, with measurements as a percentage of Net Demand and Time Liabilities staying below one percent for the last five months and reaching approximately 0.2 percent in January.
Sabnavis further suggested that "there will be a greater focus on liquidity management with an open market operation calendar being announced and possibly a cash reserve ratio cut invoked to infuse permanent liquidity." A Nuvama Research report indicated that the recent trade agreement between the United States and India could support foreign capital flows and stabilize the rupee, providing the RBI with additional flexibility in managing domestic liquidity conditions.
Growth and Inflation Projections
Most economists believe the RBI will maintain its current forecasts for both economic growth and inflation. In the December policy announcement, the central bank significantly revised its gross domestic product projection for FY26 upward by 50 basis points to 7.3 percent from the previous estimate of 6.8 percent. Government estimates suggest real GDP growth could reach 7.4 percent for the fiscal year.
Regarding inflation, the RBI had previously lowered its consumer price index projection for 2025-26 to 2 percent from 2.6 percent. With new data series scheduled for release beginning February 12, the committee is expected to monitor these figures closely before considering any adjustments to its economic outlook.
Impact on Lending and Deposit Rates
Should the MPC maintain the current repo rate, interest rates on both loans and deposits are likely to remain stable in the immediate term. All external benchmark lending rates linked to the repo rate would not experience increases. However, financial institutions might still adjust interest rates on loans connected to the marginal cost of fund-based lending rate, independent of the central bank's policy decision.
The upcoming monetary policy announcement comes at a crucial juncture, with new economic data releases and evolving global trade dynamics creating a complex environment for India's central bankers as they balance growth objectives with inflation management priorities.
