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RBI Rate Decision Looms After Budget & US Trade Deal: What to Expect

Following the Union Budget and a major US trade deal, the Reserve Bank of India's Monetary Policy Committee meeting is now in focus. Economists widely expect the RBI to pause its rate-cutting cycle, holding the repo rate at 5.25%. The central bank's attention is shifting towards direct measures to manage banking system liquidity, bond market stability, and currency risks. Analysts suggest the RBI will retain a neutral stance to preserve policy flexibility amid anticipated higher inflation and record government borrowings.

Key Points: RBI MPC Meeting: Repo Rate Decision After Budget & US Trade Deal

  • RBI likely to pause repo rate cuts
  • Focus on direct liquidity measures
  • Inflation view key for future policy
  • Record govt borrowings to influence operations
2 min read

After Budget and India-US trade deal, all eyes on RBI's repo rate decision

RBI MPC meeting begins Feb 4. Economists expect a pause on repo rate cuts at 5.25% as focus shifts to liquidity measures and bond stability.

"We expect bond purchases to continue this quarter... the central bank might prefer to be agile and nimble its money market related operations - Radhika Rao, DBS Bank"

New Delhi, Feb 4

After the Union Budget 2026 and the historic India-US trade deal, all eyes are now on the three-day Reserve Bank of India's Monetary Policy Committee meeting that begins from Wednesday, with the key repo rate decision on Friday.

Economists believe RBI Governor Sanjay Malhotra-led MPC is likely to pause any further policy rate cut. The Central Bank is rather set to undertake direct measures to tackle liquidity, bond stability and currency-related risks.

The RBI has already lowered the repo rate by 125 basis points since February 2025 to 5.25 per cent.

With inflation likely to move higher (even in the new base year series to be published starting February 12, there is little reason for moving in with further cuts, said analysts.

"With the current repo rate at 5.25 per cent, and with inflation anticipated at around 4 per cent (will wait to see if the new series changes the inflation view), the current real rate of 125 bps seems reasonable," according to a note by Yes Bank.

The RBI should stay on a pause and keep stance at "neutral" and retain its fire power in the event of any growth slump, it added.

"We expect bond purchases to continue this quarter and in April-June 2026. With the FY27 Budget outlining a record high of borrowings, the central bank might prefer to be agile and nimble its money market related operations and keep borrowing costs in check," according to Radhika Rao, Executive Director and Senior Economist at DBS Bank.

The RBI recently announced a series of liquidity-enhancing measures that will pump in more than Rs 2 lakh crore into the banking system to ease liquidity pressure. The Central Bank said it will use a combination of open market bond purchases, a foreign exchange swap, and a variable rate repo operation to ease liquidity conditions in the financial system. The steps are being undertaken following a review of current liquidity and financial conditions.

- IANS

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Reader Comments

R
Rohit P
Good analysis. The US trade deal is a big positive, but we need to manage our own house first. High government borrowing means RBI has to be very careful with liquidity. Hope they keep EMIs stable for home and car loans.
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Aman W
As a small business owner, liquidity is more important than rate cuts right now. That Rs 2 lakh crore infusion into banks needs to actually reach MSMEs. Banks are still very cautious with lending to us. RBI should ensure that.
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Sarah B
Watching from an investment perspective. Bond market stability is key for foreign investors after the trade deal announcement. A prudent pause from RBI will signal maturity and attract more long-term capital. Smart move.
K
Karthik V
With respect, I think there's room for a small, symbolic cut. Growth needs a nudge, and 25 bps wouldn't hurt inflation much. The "wait and see" approach is sometimes too cautious. We need to boost consumer sentiment.
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Nisha Z
The new inflation data series is a big question mark. How can they decide without that clarity? Better to pause and assess the real picture next month. Jaldi ka kaam shetan ka kaam! (Haste makes waste).

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