Daijiworld Media Network - New Delhi
New Delhi, Feb 2: The Reserve Bank of India’s Monetary Policy Committee (MPC) is scheduled to meet from February 4 to 6, and economists expect the panel to maintain a pause on further policy rate cuts, even as the central bank intensifies efforts to manage liquidity, stabilise bond markets, and mitigate currency-related risks.
The RBI has already reduced the repo rate by a cumulative 125 basis points since February 2025, bringing it down to 5.25 per cent. Given this substantial easing, experts believe the central bank will now rely more on targeted liquidity measures rather than additional rate reductions.
“With the government staying committed to its fiscal consolidation roadmap, we do not anticipate any significant shift in the stance of monetary policy,” said Radhika Rao, executive director and senior economist at DBS Bank.
Although the MPC delivered a rate cut in December 2025, analysts expect it to hold rates steady at the upcoming February meeting. Rao noted that bond purchases are likely to continue through the current quarter and into April–June 2026. With the Union Budget for FY27 outlining record borrowing levels, the RBI may choose to remain flexible and proactive in its money market operations to contain borrowing costs.
Economic growth momentum has remained resilient despite ongoing global trade tensions, while inflation has moved off its recent lows. At the same time, the rupee has been under sustained pressure, touching successive record lows, and banks continue to face challenges in mobilising deposits.
Economists also pointed out that the Union Budget 2026 maintains macroeconomic stability and policy continuity. Fiscal consolidation remains on track, with the Centre’s debt-to-GDP ratio projected to decline by about 0.5 percentage points and the fiscal deficit expected to narrow to 4.3 per cent of GDP. Both the effective revenue deficit and primary deficit are set to improve further. Rao cautioned that further rate cuts could accelerate the outflow of rate-sensitive portfolio investments.
Recently, the RBI announced a fresh set of liquidity-boosting measures aimed at injecting over Rs 2 lac crore into the banking system. These steps include open market bond purchases, a foreign exchange swap, and variable rate repo operations, introduced after a review of prevailing liquidity and financial market conditions.
SBI Research observed that despite the RBI’s 125-basis-point rate cut and liquidity injections amounting to Rs 6.6 lac crore through open market operations in the current fiscal year, bond yields have remained stubbornly high. According to the report, uneven liquidity management has led to asymmetric transmission across different market segments.
To address this, SBI Research suggested that the RBI conduct open market operations in more liquid securities to have a stronger impact on yields. As an example, it recommended focusing on the immediate outgoing benchmark 10-year paper—such as the 6.33 per cent 2035 bond—rather than the current benchmark 6.48 per cent 2035 paper.