Despite earlier policy easing, rising bond yields, currency swings and global uncertainty may push the RBI to maintain a status quo this time.
Why RBI may keep the repo rate unchanged
The SBI report said several macroeconomic pressures are limiting the scope for fresh rate cuts. Government bond yields have remained firm in recent weeks, even after previous policy easing, suggesting that the impact of earlier measures is still playing out.
It added that the effectiveness of Open Market Operations (OMOs) could also be affected by the type of securities selected, which may slow the transmission of monetary policy.
Because of this, the RBI is likely to avoid any major changes and hold rates steady in the upcoming policy announcement.
Trade deals offer relief to India’s exports
One positive development since the last policy meeting has been the finalisation of the EU-India and US-India trade deals.
The report noted that tariffs on Indian goods have dropped sharply from 50 per cent to 18 per cent. This has given India one of the lowest tariff rates among Asian economies, improving export competitiveness and boosting trade prospects.This could support growth in the coming months, especially for manufacturing and goods exports.
But global risks remain high
However, the global picture is far from stable. The report pointed to the Geo-Economics Stress Index, which shows that heightened uncertainty often leads to economic stress after a lag of three to four months.
This means risks could surface in the near future, keeping policymakers cautious.
At the same time, metal prices have recovered after a recent sell-off, which could complicate the inflation outlook.
Rupee volatility a key concern
Currency movements remain another challenge for the RBI.
The Indian rupee has been volatile, moving between 89 and 92 against the US dollar over the past two months. It has weakened by 5.8 per cent since early April, when the US announced broad tariff hikes.
However, the rupee gained more than Re 1 after the India-US trade deal reduced tariffs, offering some relief.
Such sharp fluctuations may make the RBI wary of any aggressive policy action.
Inflation signals mixed
On inflation, the report said new CPI weightings could slightly raise the overall inflation reading by 20–30 basis points. However, during months of high food inflation, the new index may show slightly lower figures.
These mixed signals make it harder to take a clear policy direction, reinforcing the case for a wait-and-watch approach.
Policy decision on Friday
The RBI’s three-day MPC meeting was held from February 4 to 6, with the policy outcome set to be announced on Friday.
Given the uncertain global environment, firm bond yields and currency swings, the central bank is expected to stay cautious and keep the repo rate unchanged for now.
Inputs from agencies