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Will RBI Cut Repo Rate Or Pause It? MPC Meeting Decision To Be Announced Tomorrow
Will RBI Cut Repo Rate Or Pause It? MPC Meeting Decision To Be Announced Tomorrow
With inflation under control and growth steady, the RBI is widely expected to hold the repo rate at 5.25% in Friday's policy announcement.
RBI MPC Meeting February 2026: The Reserve Bank of India's rate-setting panel, whose three-day monetary policy deliberations started on Wednesday, will finalise its decision on Friday, February 5, 2026. The decision will be announced by RBI Governor Sanjay Malhotra amid a supportive domestic backdrop of a growth-oriented Union Budget, easing inflation pressures and a major easing of external uncertainty following the long-awaited India-US trade deal.
The six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, will announce its decision on Friday. Most economists expect the central bank to keep the policy repo rate unchanged after having already delivered aggressive easing over the past year.
What Has the RBI Done So Far?
Since February last year, the Reserve Bank of India has reduced the repo rate by a cumulative 125 basis points, bringing it down to 5.25 per cent. The most recent cut came in December, when the MPC lowered the rate by 25 basis points after holding fire in the previous two meetings.
With growth holding up and inflation remaining benign, many experts believe the RBI may now prefer to pause and assess the impact of earlier rate cuts.
Why a Pause Looks Likely
Economists point out that there are currently no pressing concerns on either growth or inflation that would force immediate further easing.
Madan Sabnavis, Chief Economist at Bank of Baroda, expects the rate-cutting cycle may be nearing its end. “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 are signalling limited room for further rate action, especially since the government's net borrowing programme is broadly unchanged from last year.
“Given the rather tight liquidity conditions, banks cannot reduce rates across the board. Therefore, a pause looks most likely,” he added.
Focus Shifts to Liquidity Measures
Instead of cutting rates, the RBI may choose to work on liquidity management.
According to Sabnavis, tools such as Open Market Operations (OMOs) and forex swaps are likely to continue, and there could even be a discussion around lowering the Cash Reserve Ratio (CRR) if liquidity tightens further.
This view is echoed across brokerages and rating agencies, which believe that rate transmission to lending rates is still underway.
Key Data Releases Could Influence the Next Move
Aditi Nayar, Chief Economist at ICRA, said a pause would give the MPC time to evaluate important upcoming macro data.
“Together, these data series will help determine the prevailing growth-inflation mix and support formulating a fresh outlook,” Nayar said.
The January 2026 CPI inflation data, based on a new 2024 base year, will be released on February 12, while GDP data covering FY24 to FY26 is scheduled for February 27.
Hold vs Cut: A Close Call
While inflation remains comfortable, some economists argue that the RBI technically still has room to cut rates.
Dharmakirti Joshi, chief economist at Crisil, said the decision is finely balanced.
“Benign inflation provides the RBI with scope to consider cutting rates. The Budget, too, remains non-inflationary due to fiscal restraint,” Joshi said.
However, he added that the central bank may prefer caution. “We lean towards a hold this time and the RBI may prefer to keep powder dry for future policy actions.”
What Brokerages and Banks Are Saying
A report by Nuvama Research also expects the RBI to maintain status quo and stick to a neutral stance, noting that bond yields have remained sticky despite policy easing.
“Transmission to bank lending rates is in progress and bond yields have been quite sticky,” the report said, adding that liquidity management is likely to take priority over rate action.
Similarly, State Bank of India expects no change in rates, citing global uncertainty, pressure on government bond yields and volatility in the rupee.
According to SBI's analysis, even OMOs may have limited impact depending on the securities chosen, potentially restricting policy transmission.
Trade Deals Offer External Comfort
One supportive factor this time is the finalisation of major trade agreements, including those with the US and the EU. The sharp reduction in tariffs on Indian goods is expected to boost exports, improve capital inflows and lend stability to the rupee.
This external comfort, analysts say, gives the RBI greater flexibility to manage domestic liquidity without rushing into further rate cuts.
With inflation under control, growth holding steady and the impact of past rate cuts still playing out, the RBI is widely expected to hold the repo rate at 5.25 per cent in Friday's policy announcement.
Markets will closely watch the RBI's commentary on liquidity, inflation risks and the future policy path to gauge whether this pause marks the end of the rate-cut cycle — or just a breather.
Source: News18.com
Source: OfficeNewz
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