ICICI Bank Report Forecasts Extended RBI Rate Pause Amid Subdued Core Inflation
A recent analysis by ICICI Bank Global Markets suggests that the Reserve Bank of India (RBI) is poised to maintain a prolonged pause in its monetary policy rate cycle, extending into the fiscal years 2026–27. The report, cited by ANI, highlights that the likelihood of a rate hike remains minimal, primarily due to persistently low core inflation figures.
Inflation Risks Deemed Manageable Despite External Pressures
According to the ICICI Bank report, the risk of a sharp inflationary surge does not appear significant, especially in light of recent core inflation readings based on the new Consumer Price Index (CPI) series. While oil prices have experienced a notable increase, this development is not expected to substantially alter the inflation outlook. The report emphasizes that current conditions still justify keeping interest rates unchanged.
Minutes from the latest monetary policy meeting reveal increased optimism among policymakers regarding economic growth. This positive sentiment is bolstered by robust high-frequency indicators and recent trade agreements with the United States and the European Union. Reflecting this improved economic trajectory, growth projections for the first half of FY2026–27 have been revised upward by 20 basis points.
Monetary Policy Committee Maintains Focus on Transmission
Despite a marginal upward revision in CPI projections—largely attributed to higher precious metals prices—most members of the Monetary Policy Committee (MPC) continue to view the inflation outlook as manageable. The new CPI series indicates some upward pressure in food inflation, but core inflation remains lower than anticipated.
The enhanced growth outlook reduces the probability of further rate cuts, yet interest rates are anticipated to remain stable for an extended period. Inflation is projected to stay close to the central bank's target, allowing the MPC to concentrate on ensuring effective monetary policy transmission.
"The focus of MPC is likely to be on transmission and use of different tools to ensure the same. Since the December rate cut, bond yields and wholesale deposit rates have moved the other way with recent inching up of oil prices not helping," stated ICICI Bank Global Markets in their report.
Recent Policy Decision Reinforces Neutral Stance
Earlier this month, on February 6, the Monetary Policy Committee of the Reserve Bank of India unanimously decided to keep the repo rate unchanged at 5.25 percent while maintaining a neutral policy stance. This decision aligns with the report's expectation of a prolonged pause, underscoring the RBI's commitment to supporting economic growth without stoking inflationary pressures.
The ICICI Bank report concludes that the central bank's greater emphasis will be on injecting durable liquidity into the system to facilitate smoother monetary policy transmission, ensuring that the benefits of stable rates permeate throughout the economy.
