The Reserve Bank's rate-setting panel will start its three-day brainstorming for the next bi-monthly monetary policy on Wednesday in the backdrop of growth-focused Union Budget, low inflation and more recently the long-awaited India-US trade deal ending prolonged uncertainty on the external front.
Experts are of the view that the Reserve Bank of India has already reduced the key short-term lending rate (repo) by 125 basis points since last February, and may go for status on rates as there are no pressing concerns on either growth or inflation.
However, some are of the opinion that the central bank may go for one more rate to further borrowing cost.
The decision of RBI Governor Sanjay Malhotra-headed six-member Monetary Policy Committee (MPC) will be announced on Friday.
"The MPC looks likely to hold on to the repo rate and this could also be the end of the rate-cutting cycle," Madan Sabnavis, Chief Economist of Bank of Baroda, said.
The reason is that the bond yields have probably indicated that there may be no let down now considering that the borrowing programme of the government in net terms is the same as last year, he said, adding that given the rather tight liquidity conditions, banks cannot reduce rates across the board.
"Therefore, a pause looks most likely. The RBI will be looking at measures to augment liquidity and while OMO and forex swaps will continue, there may also be consideration of lowering the CRR if needed," Sabnavis said.
ICRA Chief Economist Aditi Nayar said notwithstanding the contours of the Union Budget, rating agency ICRA believes that a pause is warranted at this juncture to assess the upcoming retail inflation (CPI) data for January 2026 and the GDP data covering FY24 to FY26.
The CPI data for January 2026 is scheduled for release on Feb. 12, using 2024 as the new base year, while the GDP data covering FY24 to FY26 is due for release on Feb. 27, with 2022–23 as the base year.
"Together, these data series will help determine the prevailing growth-inflation mix and support formulating a fresh outlook," Nayar said.
Crisil Chief Economist Dharmakirti Joshi said benign inflation provides the RBI with scope to consider cutting rates.
"The Budget, too, remains non-inflationary due to fiscal restraint. Simultaneously, the economy is also doing well. Given these factors, the decision is likely to be a close call between holding or cutting rates.
"However, we lean towards a hold this time and the RBI may prefer to keep powder dry for future policy actions," he said.
In December, the RBI had reduced the repo rate by 25 basis points to 5.25%, after leaving it unchanged in the preceding two MPC meets.
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