The central bank has lowered benchmark borrowing costs by a cumulative 125 basis points since February 2025. But inflation is well below its target range and with robust economic growth, it has no real reason to cut rates further.
Growth, however, is being driven primarily by government outlays and not private investment, which is still lagging despite the RBI’s short series of rate cuts.
Over 80% of economists, 59 of 70, in the January 19-28 Reuters poll expected the Monetary Policy Committee to hold the repo rate at 5.25% at the conclusion of its February 4-6 meeting.
Of the remaining respondents, 10 forecast a 25-basis-point cut, while one expected a larger 50-basis-point reduction.
Most economists expect rates to remain at 5.25% at least until the end of this year.”The RBI MPC is in a very good place now, and there should be no inclination to act further to support growth,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
With uncertainty persisting around when or if Washington’s punitive 50% tariffs on Indian goods will be reduced or removed, the government has sought to negotiate new trade links with Britain, New Zealand, Oman, and, just this week, with the European Union.
New Delhi also is expected to extend a trend of fiscal consolidation in its Union budget due on February 1 following recent tax cuts.
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Upadhyay said “the focus for RBI now would be to ensure that this easy policy is transmitted broadly into the economy.”
The poll showed inflation was expected to average 2.1% this fiscal year and then rise to 4.0% in the next.
Growth was forecast to average 7.4% this year and slow to 6.7% in the next.
SUPPORT FOR ECONOMY OR CURRENCY?
Recently the RBI has been caught between supporting the economy and intervening in currency markets to defend the rupee, which has been under pressure in part as foreign investors have withdrawn around $4 billion from the Indian stock market so far this year.
The rupee fell to an all-time low of 91.9650 against the dollar last week.
Some economists say these RBI currency interventions have drained liquidity from the banking system, dampening the effect of past rate cuts.
“Transmission has happened only in cases where the loans are linked with the repo rate…basically, banks are short of funds. They cannot reduce their deposit rates,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
RBI recently rolled out steps to add more than $23 billion in liquidity via bond purchases, buying and selling foreign exchange swaps, and repo operations.