Mumbai: RBI Governor Sanjay Malhotra-headed six-member rate-setting panel Wednesday started deliberations on the next set of bi-monthly interest rate in the backdrop of growth-focused Union Budget and announcement of India-US trade deal, which lifted market sentiments.
The decision of the Monetary Policy Committee (MPC) will be announced by Malhotra Friday morning.
Experts are of the view that the RBI has already reduced the key short-term lending rate (repo) by 125 basis points since last February, and may go for status quo on rates as there are no pressing concerns on either growth or inflation fronts.
However, some are of the opinion that the central bank may go for one more rate cut to further borrowing cost.
A BofA Global Research note said the RBI’s rate-cutting cycle appears to be over for now.
The trade deal now would boost the growth certainty and the current momentum seen in high frequency indicators can continue to sustain, it said.
“We also believe the RBI is now done cutting rates but will continue to manage its liquidity provisions carefully to ensure rate transmission remains active,” the note said.
On expectations from MPC, Deepak Agrawal, CIO – Debt, Kotak Mahindra AMC opined that the RBI’s upcoming policy, coming soon after the Union Budget, is set against a supportive domestic macro backdrop.
“With inflation well below the target, growth momentum intact, surplus system liquidity, and fiscal consolidation reaffirmed, conditions favour policy stability. While global uncertainties remain, India’s relatively strong growth dynamics, improving external position, and record foreign exchange reserves provide the MPC with ample comfort to stay on pause,” Agrawal said.
Additionally, tariff reduction by the US, EU-India FTA deal would ease pressure on the INR, giving the RBI enough room to release adequate durable liquidity to keep system surplus on durable basis — something that had been constrained in the recent past.
“Accordingly, the committee is expected to maintain the repo rate unchanged at 5.25 per cent; however, forward guidance is likely to remain mildly dovish, underscoring a data-dependent stance and preserving flexibility for recalibration should the growth-inflation trade-off evolve,” Agrawal said.
Lokanath Panda, COO, BLS E-Services, said Finance Minister Nirmala Sitharaman has presented Budget 2026, targeting broad-based productivity gains and employment generation through structural reforms and new infrastructure.
“Against this backdrop, the RBI’s MPC is likely to pause its rate cuts. Having already lowered the repo rate by 125 basis points since early 2025 with the last cut in December which helped the banks interest rates reduction and increased liquidity in the market, we expect the central bank is now poised to concentrate on liquidity conditions, bond market stability, and currency risk management,” Panda said.
The government has tasked the Reserve Bank to ensure consumer price index (CPI)-based retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
The inflation, which is below 4 per cent since February 2024, stood at 1.33 per cent in December. The retail print of January will be announced later this month.
Ashok Kapur, Chairman, Krishna Group and Krisumi Corporation, said in the current macroeconomic environment, the RBI is expected to continue with a balanced and growth-supportive stance.
The Union government’s decision to raise public capital expenditure is expected to create a strong multiplier effect across infrastructure and allied sectors, including real estate, he said.
“At this juncture, a stable interest rate environment will play a key role in reinforcing buyer confidence, sustaining housing momentum, and supporting developers in driving new launches and job creation, thereby contributing meaningfully to overall economic growth,” Kapur said.
The other members of the MPC are Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi; Saugata Bhattacharya, Economist, Mumbai; Ram Singh, Director, Delhi School of Economics; Poonam Gupta, RBI Deputy Governor; and Indranil Bhattacharyya, RBI Executive Director.
PTI
