Reserve Bank of India
RBI MPC: The Monetary Policy Committee (MPC) of the Reserve Bank of India may once again cut the repo rate in its last meeting of the financial year on 6 February. After continuously reducing interest rates in the last one year, now the markets are debating whether RBI will cut another repo rate or will take a break considering the situation.
This review is taking place at a time when in the recently presented Union Budget 2026, a target has been set to increase the capex by 12% and keep the fiscal deficit at 4.3%. The external environment is also looking a little better. America has reduced tariffs on India to 18% and India-EU FTA is expected to support trade and capital flow. In the last one year, MPC has reduced interest rates four times. There was a reduction of 0.25% in February 2025, 0.25% in April and 0.5% in June. After the ban in August and October, another cut of 0.25% was made in December. After such a huge total cut, many economists believe that there is less scope for further cuts.
Repo rate and cut or status quo?
Analysts say that this meeting will probably be more about how the RBI will handle liquidity, bond yields and financial conditions amid the government’s huge borrowing program of ₹ 17.2 trillion in FY27, rather than the rate cut. According to Sujan Hazra of Anand Rathi Group, government spending and trade are supporting growth, but the pace of inflation makes further cuts difficult. He says that gradual increase in inflation reduces the need for immediate rate cut. In such a situation, the focus can remain on the stability and liquidity management of the bond market.
Emkay also believes that the US-India trade agreement has reduced global uncertainty, which may provide support to the current account, foreign investment and the rupee. However, he warned that inflation may increase slightly due to the loss of base effect and despite such relaxation, monetary transmission is weak. According to Emkay, system liquidity could reach ₹2.4 trillion by the end of March, which would reduce the need for further support from the RBI.
RBI can take this decision on 6th February
Wells Fargo believes that RBI will keep the rates stable this time and the focus will be on liquidity tools and yield management. It estimates that the repo rate will remain at 5.25% and the policy stance will remain neutral. After the total cut of 125 basis points, RBI will not make further cuts in a hurry, but will use OMO, VRR and targeted liquidity measures. Also, forex operations may continue to manage rupee volatility. Overall, given the budget’s borrowing calculations, improving trade environment, signs of inflation and already high liquidity, there seems to be little hope of a further cut in the repo rate on February 6.