All eyes are now on the Reserve Bank of India’s (RBI) three-day Monetary Policy Committee (MPC) meeting, which starts on Wednesday and will include the crucial repo rate decision on Friday, following the Union Budget 2026 and the historic India-US trade agreement.
Economists predict that any additional policy rate cuts by the MPC, chaired by RBI Governor Sanjay Malhotra, will be halted. To address the risks associated with currency, bond stability, and liquidity, the Central Bank is instead planning to take direct action.
In February 2025, the RBI reduced the repo rate to 5.25%, a reduction of 125 basis points.
There is no justification to make more cutbacks, analysts added, since inflation is expected to rise even in the new base year series that will be released on February 12.
According to a Yes Bank note, “the current real rate of 125 bps seems reasonable with the current repo rate at 5.25 percent and with inflation anticipated at around 4 percent (will wait to see if the new series changes the inflation view).”
It further stated that in the event of a growth collapse, the RBI should remain on hold, maintain a “neutral” attitude, and maintain its firepower.
Bond purchases are anticipated to continue this quarter and in April and June of 2026.
Radhika Rao, Executive Director and Senior Economist at DBS Bank., stated that, “the central bank may want to be agile and nimble in its money market related operations and keep borrowing costs in check because the FY27 Budget outlines a record high of borrowings.”
In order to relieve liquidity pressure, the RBI recently announced a number of liquidity-enhancing initiatives that will inject over Rs 2 lakh crore into the banking sector. The Central Bank stated that in order to improve liquidity conditions in the financial sector, it will employ a combination of open market bond purchases, a foreign currency swap, and a variable rate repo operation.
The actions are being taken after a review of the financial and liquidity situation.