Economists welcome the RBI’s prudent move to hold the repo rate steady, citing a cautious wait-and-watch approach amidst firm growth, evolving inflation, and an impending overhaul of key macroeconomic data like CPI and GDP series.
Leading economists have welcomed the Reserve Bank of India’s (RBI) decision to keep the policy repo rate unchanged while maintaining a neutral stance, saying the move reflects prudence amid firm growth, evolving inflation dynamics and an impending overhaul of key macroeconomic data series.
Economists’ Perspectives on RBI’s Stance
Dipti Deshpande, Crisil
Dipti Deshpande, Principal Economist at Crisil, said the Monetary Policy Committee’s (MPC) decision was in line with expectations and underscored a cautious wait-and-watch approach. She noted that the MPC is factoring in a likely rise in inflation in the first half of the next fiscal year even as growth remains strong. Upcoming revisions to the consumer price index (CPI) and gross domestic product (GDP) series, following changes in methodology and base year, also warrant caution, she added. “While the RBI Governor did not explicitly announce fresh liquidity-easing measures, recent actions (of Open Market Operations and forex swaps), suggest the RBI will stay proactive on liquidity. The objective is to keep lending rates easy. Such actions have helped alleviate some pressure on systemic liquidity caused due to foreign capital outflows, the wider gap between bank credit and deposit growth, and the large government bond supply, which kept yields sticky. So far, the RBI’s measures have helped in easing shorter-tenure interest rates,” she said.
Madan Sabnavis, Bank of Baroda
Madan Sabnavis, Chief Economist at Bank of Baroda, said the unchanged repo rate left markets largely unmoved, as the decision was widely anticipated. He noted that the RBI refrained from providing GDP and inflation forecasts for the next year, given that the new CPI and GDP series are expected later this month. “Again, in line with the push given by the Budget to MSMEs, the RBI has increased the limit for collateral-free loans to Rs 20 lakh. Hence there seems to be steady follow up action to the Budget announcements. We may expect that the rate cycle has ended and 5.25% repo rate would stand for some time before any action is taken, which is more likely in upward direction if inflation turns out to be higher in future,” Sabnavis said.
Radhika Rao, DBS Bank
Radhika Rao, Executive Director and Senior Economist at DBS Bank, said the decision to hold rates was anchored in the MPC’s favourable assessment of growth and inflation conditions, ahead of the data series overhaul. “Based on our estimates, the proposed tariff reduction could add ~ 20 bps to GDP growth, leading us to project growth of 7.2% for FY27. CPI inflation is expected to average close to 4% in FY27. However, the forthcoming new series for both CPI and GDP will need close monitoring, as these could lead to minor revisions to our projections,” she said.
Rajani Sinha, CareEdge Ratings
Rajani Sinha, Chief Economist at CareEdge Ratings, said the February policy outcome was in line with expectations. She pointed out that the MPC revised up its average growth projection for the first half of FY27 by 20 basis points to 7%, while raising CPI inflation projections for FY26 and the first half of FY27 by 10 basis points each. “The Governor flagged a range of factors behind the recent uptick in bond yields and underscored the authorities’ readiness to respond pre-emptively. Looking beyond February, we expect the RBI to maintain an extended pause, supported by a positive cyclical upswing and confidence effects stemming from the successful conclusion of U.S. trade negotiations. We also anticipate additional open market operations over this and the next quarter, with any such measures likely to be announced outside the policy cycle,” she added.
On liquidity, Sinha said the RBI reiterated its commitment to maintaining comfortable conditions through timely interventions, with further liquidity injections likely, especially during tax outflows in March. She added that easing global trade policy uncertainties could support the rupee, potentially allowing the RBI to scale back forex market interventions, which would also aid domestic liquidity. She does not expect further rate cuts unless growth faces significant downside risks.
Upasna Bhardwaj, Kotak Mahindra Bank
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, echoed similar views, saying the MPC’s decision was completely in line with expectations. She flagged marginal upward revisions to the inflation outlook for the first half of FY27 and noted that higher commodity prices and a weaker currency could pose upside risks to inflation. As a result, she sees limited room for further rate easing, with the RBI’s focus likely to remain on ensuring liquidity stability in the year ahead.
Overall Outlook and Future Expectations
Overall, economists see the RBI maintaining a cautious pause on rates, closely watching inflation trends, growth momentum and the implications of the forthcoming statistical series revamp, while remaining agile on liquidity management. (ANI)
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