“RBI Expected to Hold Policy Rates Steady, Say Economists Ahead of Meeting”
Economists expect pause on rate cuts as central bank prioritizes bond stability, currency support, and liquidity infusion.
Mumbai, Jan 02 : The Reserve Bank of India (RBI) is scheduled to hold its Monetary Policy Committee (MPC) meeting from February 4 to 6. Economists widely predict that the MPC will opt for a pause on further policy rate cuts, while the central bank continues to implement measures to manage liquidity, stabilize bond markets, and mitigate currency risks.
Since February 2025, the RBI has already reduced the repo rate by 125 basis points to 5.25%. “With the government on a steady fiscal consolidation path, we do not expect any material change in monetary policy direction,” said Radhika Rao, Executive Director and Senior Economist at DBS Bank.
While the MPC had lowered rates in December 2025, analysts anticipate no further cuts this month. Instead, the RBI is expected to focus on open market operations and other tools to maintain borrowing costs and financial stability, particularly in light of the record-high borrowings outlined in the FY27 Union Budget.
Rao noted that economic growth has remained resilient despite global trade tensions, though inflation has edged up from previous lows. The rupee has also faced downward pressure, while deposit mobilisation continues to challenge banks.
The Union Budget 2026 is seen as supportive of macroeconomic stability, projecting a reduction in the centre’s debt to GDP ratio by around 0.5% and a narrowing of the fiscal deficit to 4.3% of GDP. Economists caution that further rate cuts could encourage additional repatriation of rate-sensitive portfolio flows, which the RBI seeks to avoid.
To ease liquidity pressure, the central bank recently announced measures injecting over Rs 2 lakh crore into the banking system, including open market bond purchases, foreign exchange swaps, and variable rate repo operations. According to SBI Research, despite the RBI’s 125 basis point repo cut and Rs 6.6 lakh crore liquidity infusion this fiscal year, yields have remained sticky, highlighting the need for targeted interventions in liquid benchmark papers to influence market rates effectively.
