RBI MPC: The Reserve Bank of India’s Monetary Policy Committee (MPC) begins its final meeting of FY26 on December 4and will come out with its policy announcement on February 6. After an extended rate-cut cycle over the past year, markets are now debating whether the RBI will opt for another reduction in the repo rate or choose to pause and reassess evolving macro conditions.
This policy review comes at a crucial juncture. Just days ago, the Union Budget 2026 outlined a 12% rise in capital expenditure and set a fiscal deficit target of 4.3%. At the same time, the external environment appears to be improving, with the US lowering tariffs on India to 18% and the recently signed India–EU FTA expected to support trade flows and capital movement.
Over the past year, the MPC has already delivered four rate cuts. The easing cycle started in February 2025 with a 0.25% cut, followed by another 0.25% in April and a sharper 0.5% reduction in June. After pausing in August and October, the committee cut the repo rate once more by 0.25% in December. With cumulative easing now substantial, many economists believe the RBI’s room for further cuts has narrowed.
Repo rate: More rate cut ahead or status quo?
Analysts increasingly argue that this meeting may be less about the repo rate and more about how the RBI intends to manage liquidity, bond yields, and financial conditions as the government prepares for a massive ₹17.2 trillion borrowing programme in FY27.
Sujan Hajra of Anand Rathi Group believes that while growth remains supported by public-sector spending and trade tailwinds, inflation dynamics make further easing tricky at this stage.
“With GDP growth expected to moderate modestly, but potential growth being supported by sustained public-sector capex and the boost from two major trade agreements, the monetary policy calculus remains finely balanced.”
He added that a calibrated rise in retail inflation reduces the urgency for near-term rate cuts. Instead, the focus may shift toward ensuring stability in the bond market and maintaining orderly liquidity conditions rather than altering the policy rate or stance.
Echoing a similar sentiment, Emkay pointed out that global uncertainties have eased somewhat due to the US–India trade resolution, which may support the current account, foreign portfolio flows, and the rupee.
“Even as global macro and market narratives continue to swing, the Feb-26 MPC faces a more supportive external backdrop, aided by the US–India trade resolution, which should help stabilize the current account.”
However, the brokerage cautioned that inflation could edge higher as favorable base effects fade. It also flagged weak monetary transmission despite deep easing and sustained liquidity infusion. Emkay expects system liquidity to rise sharply to around Rs2.4 trillion by end-March FY26 from about Rs200 billion at end-December FY25, limiting the need for additional RBI support.
From a global banking perspective, Wells Fargo expects the RBI to firmly hold rates steady and pivot attention toward liquidity tools and yield management.
“The February RBI monetary policy is expected to deliver a pause on rates, with the repo likely to be held at 5.25% and the policy stance remaining neutral.”
Santanu Sengupta of Wells Fargo noted that after 125 basis points of cumulative easing, the central bank is unlikely to rush into further cuts. Instead, the RBI may rely on open market operations, variable rate repos, and targeted liquidity measures to ensure that government securities markets remain stable amid elevated borrowings.
He also expects the RBI to continue smoothing currency volatility through calibrated forex operations and swaps, without targeting a specific rupee level.
Taken together, the Budget’s borrowing math, improving trade environment, firming inflation signals, and already-elevated liquidity levels suggest that February 6 may not bring another repo rate cut.
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