The RBI’s Monetary Policy Committee (MPC) is meeting for the last time in FY26. The 3-day meeting begins today and will conclude on February 6 with RBI Governor Sanjay Malhotra announcing key decisions on policy measures, especially the repo rate.
The big question now is whether RBI will stay on pause or cut rates further. Several factors would need to be considered. Many analysts believe the RBI MPC may vote for a pause.
RBI MPC meeting begins – Key factors to watch
This RBI MPC meeting is interestingly timed. The Budget for FY27 was announced on February 1 where the Govt 12% hike in capital expenditure for FY27 and pegged the fiscal deficit target at 4.3%.
Gross market borrowings are estimated at Rs17.2 trillion for FY27, higher than Rs14.6 trillion in FY26.
The RBI MPC also coincides with the anticipation building around the much awaited India-US deal being inked. The US has cut tariffs on India to 18%.
This along with the recently signed India-EU FTA will be in focus when the RBI Governor announces policy decisions on February 6.
Key Expectations: Nuvama expects RBI to hold repo rate at 5.25%
With all these backdrop in focus, Nuvama expects RBI to maintain the status quo keeping the repo rate unchanged at 5.25% after a cumulative easing of 125 basis points. It also expects RBI to retain its neutral stance.
“Transmission to bank lending rates is in progress and bond yields have been quite sticky. Hence, for now, the central bank is likely to focus more on liquidity management than rate action. In this regard, the trade deal between US and India shall help support foreign flows and INR, which gives RBI leeway to manage domestic liquidity,” Nuvama noted.
Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group expects the policy focus to now shift toward liquidity management and yield-curve stability.
“With GDP growth expected to moderate modestly, but potential growth being supported by sustained public-sector capex and the boost from two major trade agreements, the monetary policy calculus remains finely balanced. A calibrated uptick in retail inflation further limits the case for near-term easing. In this context, the MPC is likely to stay in wait-and-watch mode, keeping the repo rate on hold, as the RBI’s room for additional cuts remains constrained,” Hajra said.
“Instead, policy focus is expected to shift toward liquidity management and yield-curve stability, particularly in light of the Union government’s Rs 17.2 trillion gross borrowing programme. Active management of system liquidity and bond-market spreads will be far more critical than adjustments to the policy rate. Accordingly, no material change in the policy stance or the RBI’s macroeconomic projections is expected at this meeting,” said Hajra.
RBI MPC’s rate-cut journey from February to December
RBI MPC has cut repo rate four time since the previous Feburary meet to that the last december meet. Here is a detailed look. The rate-cut cycle began in last February 2025, when the MPC unanimously lowered the repo rate by 0.25%. This was followed by another 0.25% cut in the April meeting and a sharper 0.5% reduction in June. The committee then chose to pause in both the August and October reviews before cutting the rate once more in the December meeting by 0.25%.
For FY26 so far, the repo rate declined to 5.25% in December from 6.25% in February