The RBI Monetary Policy Committee is scheduled to announce its decision on the key policy rate on Friday. Economists anticipate that the Central Bank will likely pause in February following a rate cut in December 2025. The tone and forward guidance of the announcement are expected to be closely monitored.
The three-day RBI MPC, which commenced on Wednesday, is predicted to indicate a flexible, forward-looking response framework in light of robust growth and reduced external risks post the US trade deal. Radhika Rao, Executive Director and Senior Economist at DBS Bank, highlighted the potential avoidance of further rate cuts due to challenges in deposit mobilization and the risk of portfolio outflows.
It is anticipated that the RBI will focus on direct liquidity, bond stability, and currency management measures. Bond purchases are expected to continue in the current quarter and in April–June 2026. Despite the easing of policy rates, the RBI is likely to maintain the status quo in the upcoming policy decision, partly due to the persistent increase in government bond yields in recent periods.
Experts suggest that the selection of eligible securities could impact the effectiveness of Open Market Operations (OMO) operations, even if the overall liquidity injection remains constant. An SBI Research report emphasized the significance of the choice of eligible securities in influencing the outcomes of OMO operations, leading to the expectation that the RBI will maintain the status quo in the upcoming policy.
Following recent policy changes, including the EU-India and US-India trade deal, India has witnessed a reduction in tariffs to 18% from the previous 50%. This shift has positioned India with one of the lowest tariff rates among Asian countries, potentially enhancing export competitiveness, as noted by SBI Research.
