India’s central bank is expected to keep its repo rate steady in the February policy meeting, signaling a pause in rate cuts as it awaits fresh inflation and growth numbers.
Why RBI Might Hold Rates
The Monetary Policy Committee (MPC) will meet from February 4‑6, just after the Union budget is presented. Economists say the RBI wants to see how the new base‑year series—starting next month—affects the consumption basket and inflation outlook before making any changes.
Current Inflation and Growth Outlook
- December consumer inflation was 1.33%.
- Q3 inflation averaged 0.8%, a bit higher than the RBI’s forecast of 0.6%.
- Q4 inflation is forecast at 2.9%, but many expect it could also run higher.
Since February 2025, the RBI has cut rates by a total of 125 basis points, bringing the repo rate to 5.25%.
Liquidity Support Expected
Even with rates on hold, the RBI is likely to inject more liquidity through open market operations (OMO). Systemic liquidity turned negative in late December but has shown a modest surplus of about ₹36,869 crore in January.
- SBI’s chief economic advisor expects roughly ₹2 lakh crore of OMO activity for the rest of FY26, with a similar amount next fiscal.
- DBS Bank forecasts one or two more OMO tranches plus FX swaps to offset liquidity drains from foreign‑exchange interventions.
- Bank of Baroda is an outlier, betting on an additional repo‑rate cut, but most analysts disagree.
What Investors Should Watch
With retail inflation projected to rise above 4% in the coming quarters, the RBI’s priority appears to be ensuring ample liquidity rather than lowering rates further. Investors should monitor:
- Any announcements on OMO volumes or timing.
- Updates to the new inflation series after it rolls out next month.
- How the budget measures might influence overall economic growth.
Remember, this is perspective, not prediction. Do your own research before making investment decisions.