RBI MPC likely to hold repo rate at 5.25% in the February policy review.
Focus expected to shift toward liquidity infusion via OMOs and swaps.
Recent Budget measures and easing trade tensions provide policy space.
The Reserve Bank of India’s Monetary Policy Committee (MPC) will announce its policy decision on Friday, with market participants widely expecting the rate-setting panel to keep the benchmark repo rate unchanged at 5.25%. While a rate pause is largely priced in, economists anticipate renewed measures to ease liquidity conditions in the banking system.
After cumulative repo rate cuts of 125 basis points, most economists believe the monetary easing cycle is nearing its end, though there may still be room for a final 25 basis point cut later in the year. For now, policymakers and market participants are placing greater emphasis on liquidity infusion rather than further rate reductions, citing slower-than-expected transmission of past cuts across lending rates.
1 January 2026
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The policy decision comes against the backdrop of several key macro developments. Earlier this week, the Union Budget for FY27 announced a 12% increase in capital expenditure, with capex projected at 4.4% of GDP, while the fiscal deficit target has been set at 4.3%. Economists view the near-parity between capex and the deficit as supportive of medium-term growth, though it also limits the scope for further fiscal stimulus.
In addition, India and the US recently announced the conclusion of the first tranche of their trade negotiations, with the bilateral trade agreement expected to be formalised by mid-March. The rollback of reciprocal tariffs to 18% from 50% has eased investor risk aversion, creating additional policy space for the central bank.
Markets have responded positively to these developments. On Tuesday, the rupee recorded its biggest single-day gain in more than seven years, and economists now expect the currency to strengthen toward ₹88–89 per dollar over the medium term.
Against this backdrop, analysts expect the MPC to maintain a status quo on rates while relying more actively on liquidity tools such as open market operations (OMOs) and foreign exchange swaps. In its December meeting, the RBI announced OMOs worth ₹1 trillion, and a similar quantum is expected to be announced again.
The policy statement will be released at 10:00 am, followed by a press conference at noon. The announcement will be livestreamed on the RBI’s official website and social media platforms. The February meeting will also be the final MPC meeting of the current financial year ending March 31.
