RBI likely to hold repo rate, maintain neutral stance in upcoming MPC review: Nuvama Report

RBI MPC Meeting Kicks Off Amid High Expectations

The Reserve Bank of India's Monetary Policy Committee has begun its three-day deliberations, marking the final policy review of the fiscal year 2026.

Scheduled from February 4 to 6, this meeting comes at a pivotal time for India's economy, with Governor Sanjay Malhotra set to announce the decisions on Friday. Markets and economists are glued to the proceedings, eager for signals on the future of interest rates. Over the past year, the RBI has actively eased monetary policy, slashing the repo rate by a cumulative 125 basis points since February 2025. This brought the key lending rate down to its current level of 5.25% in the December meeting, following a series of cuts aimed at bolstering growth.

With inflation staying below the central bank's 4% target for 11 straight months, the backdrop feels relatively stable. Yet, recent upticks in food and household inflation have kept policymakers alert. The committee now faces the task of weighing whether past cuts have fully taken effect or if more support is needed for the economy's momentum.

Experts Predict Status Quo on Repo Rate and Stance

According to a detailed Nuvama Report, the RBI is likely to hold the repo rate unchanged at 5.25% and maintain its neutral policy stance in this review.

This view aligns with a broad consensus among economists and analysts who see no pressing need for further adjustments right now. Polls of experts, including those from major financial institutions, overwhelmingly expect a pause after the recent easing cycle. The report highlights that with growth holding firm and inflation manageable, the central bank can afford to assess the impact of prior measures before acting again.

India's economy is projected to expand by 7.3% in the current fiscal year, a notch higher than previous estimates, thanks to strong domestic demand and resilient consumption patterns. Robust credit flows and supportive financial conditions further underpin this outlook. The recent India-US trade deal, which eased tariffs, has added to the positive sentiment by boosting growth prospects and reducing external pressures.

"We think we have seen the last of the rate cuts in this cycle and should expect a long pause, unless growth tends to underperform, which is not our base case," noted a senior economist from a leading research team.

This cautious approach allows the RBI to keep its options open amid lingering global uncertainties, like geopolitical tensions that could ripple into domestic prices or output. Analysts point out that bond yields have shown some hardening despite the easing, suggesting the need for careful liquidity management over hasty rate moves.

Balancing Growth, Inflation, and Global Factors

The MPC's decision-making is shaped by a delicate balance between fueling economic expansion and guarding against inflation risks. Inflation has been cooperative, providing policymakers with some breathing room, but vigilance is key as food prices show signs of firming up. The upward revision in growth forecasts reflects confidence in sectors like consumption and infrastructure, spurred by the recent Union Budget's focus on reforms and spending.

External developments, including the favorable trade agreement with the US, have eased some worries about global headwinds. This deal is seen as a growth booster, potentially sustaining high-frequency indicators of economic health. However, experts caution that the RBI might prioritize macroeconomic stability and efficient policy transmission through liquidity tools rather than rate tweaks at this stage. Forward guidance is expected to stay mildly accommodative, emphasizing a data-driven path that preserves flexibility.

For borrowers and investors, a hold on rates would mean steady borrowing costs for now, with home loans and EMIs remaining predictable. This stability could encourage continued spending and investment, supporting the recovery trajectory. Banks and financial markets are bracing for the announcement, with many betting on continuity to let recent policies fully permeate the system. The neutral stance signals that the RBI isn't rushing into tightening but isn't committing to more cuts either, adapting as new data emerges.

In wrapping up, the RBI's upcoming MPC review is poised to maintain the repo rate at 5.25% and a neutral stance, as per the Nuvama Report, reflecting a prudent pause amid solid growth at 7.3% and subdued inflation. This approach prioritizes assessing prior easing while navigating global positives like the India-US trade deal, ensuring sustained economic momentum without overheating risks.