RBI MPC meet begins: Will RBI keep rates unchanged after US trade deal?

The RBI's Monetary Policy Committee has started its three-day meeting today; the central bank will announce its policy decision, including on interest rates, on February 6

The Reserve Bank of India’s Monetary Policy Committee (MPC) is holding its final policy meeting of FY26 from February 4 to 6. RBI Governor Sanjay Malhotra will announce the decisions on Friday, with a key focus on the repo rate. 

The meeting comes soon after the Union Budget and the announcement of India-US trade deal. According to experts quoted by Reuters, the central bank may choose to keep interest rates unchanged, as there are no immediate concerns on growth or inflation. 

The RBI has already cut the repo rate by a total of 125 basis points since February last year. Given this, many analysts expect a pause in the current meeting. However, some believe there is still room for one more rate cut to further reduce borrowing costs, PTI reported.

RBI MPC: Inflation, GDP data key to policy decision

Investment Information and Credit Rating Agency (Icra) Chief Economist Aditi Nayar said that despite the Union Budget announcements, the agency believes a pause is needed at this stage. She said the RBI should wait to assess upcoming data, including retail inflation and economic growth numbers, PTI reported. 

The consumer price index (CPI) data for January 2026 will be released on February 12, using 2024 as the new base year. GDP data covering FY24 to FY26 is scheduled to be released on February 27, with 2022-23 as the base year.

Rate cut transmission remains a concern

Although the economy has remained resilient, the RBI has had to step in to stabilise forex and bond markets due to heavy foreign investor outflows from Indian equities before the trade deal was announced. 

Between September and November 2025, the central bank sold $30 billion from its foreign exchange reserves. This move reduced rupee liquidity and added pressure on bond markets already strained by record government borrowing, Reuters reported. 

As a result, the benchmark 10-year government bond yield has barely declined over the past year, despite significant rate cuts. This has kept funding costs high and limited the benefits of easier monetary policy for borrowers. 

The 10-year yield is an important benchmark, as it influences borrowing costs for banks and companies. 

What happened in the December MPC meeting?

In its December policy meeting, the MPC unanimously cut the repo rate by 25 basis points to 5.25 per cent from 5.5 per cent. This cut followed a pause in the previous two meetings. 

Earlier, the committee had reduced the repo rate by 100 basis points through three consecutive cuts since February, bringing it down from 6.5 per cent in February to 5.5 per cent in June. 

The MPC maintained a ‘neutral’ policy stance. The standing deposit facility (SDF) rate was set at 5.00 per cent, while the marginal standing facility (MSF) rate and the bank rate were fixed at 5.50 per cent.

Business Standard poll sees status quo on rates

Most economists expect the RBI to keep the repo rate and policy stance unchanged in the February 4-6 review, according to a Business Standard poll of 12 respondents. The poll was conducted before the US announced a cut in tariffs imposed on India to 18 per cent from 25 per cent. 

Most respondents said a further rate cut would be considered only if there were major risks to economic growth. The MPC had reduced the repo rate by 25 basis points to 5.25 per cent in December 2025 after holding rates steady in the two meetings before that. 

Since February 2025, the RBI has cut the policy rate by a total of 125 basis points. 

Poll participants said growth is likely to remain steady in FY27, while inflation is expected to gradually move closer to the 4 per cent target. 

All respondents expect the MPC to retain a ‘neutral’ stance. However, they also expect a slightly dovish tone, along with liquidity-support measures such as an open market operation (OMO) calendar. 

They added that while policy rates have been eased significantly over the past year, further cuts may offer limited benefits due to ongoing challenges in transmitting lower rates to the wider economy.