New Delhi: After the unveiling of the Union Budget 2026 and the landmark India-US trade agreement, attention has shifted to the three-day Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting beginning Wednesday, with the much-anticipated key repo rate decision due on Friday.
Economists widely expect the MPC, headed by RBI Governor Sanjay Malhotra, to hold the policy rate steady, opting against further rate cuts at this juncture. Instead, the central bank is likely to focus on measures aimed at maintaining liquidity balance, ensuring bond market stability and mitigating currency volatility risks.
Since February 2025, the RBI has trimmed the repo rate by a cumulative 125 basis points, bringing it to 5.25 per cent. However, with inflation projected to trend higher — including under a revised base year series set for publication from February 12 — analysts say there is limited justification for additional rate reductions at present.
In a research note, Yes Bank observed that with the repo rate at 5.25 per cent and inflation forecasts near 4 per cent, “the current real rate of 125 basis points seems reasonable.” The bank added that the RBI should maintain a pause and a neutral policy stance to retain the flexibility to deploy ammunition in case of an economic slowdown.
DBS Bank’s Radhika Rao, Executive Director and Senior Economist, also highlighted expectations for continued bond purchases through the current quarter and into April-June 2026. With the fiscal year 2027 Budget outlining record-high government borrowings, Rao said the RBI may prefer to remain agile in its money market operations to help keep borrowing costs in check.
In recent weeks, the RBI has announced a suite of liquidity-enhancing measures designed to infuse more than ₹2 lakh crore into the banking system to ease pressure in money markets. These steps include open market bond purchases, foreign exchange swaps and a variable rate repo operation, implemented following a comprehensive review of prevailing liquidity and financial conditions.
The outcome of this week’s MPC meeting — especially the stance on the policy rate — will be closely watched by markets, businesses and policymakers alike as India navigates evolving inflation dynamics and growth prospects.