RBI signals end to rate cuts in February

A unanimous vote: On 6 February, the monetary policy committee of the Reserve Bank of India (RBI) voted unanimously to leave its policy rate at 5.25%, having cut by a quarter point in its previous meeting in December. February’s hold had been expected by the market, and no additional cuts are likely in the near future.

Stronger economic outlook amid trade deals drives hold: In justifying the hold, the RBI pointed to a rosier economic outlook. The central bank raised its forecast for GDP growth in the fiscal year ending March 2027 (FY 2027) to 6.9%—above our Consensus—thanks to recent trade deals with the EU and the U.S., plus the government’s recent announcement of a relatively expansionary budget. The RBI also pointed to its forecasts for prices, which still suggest that inflation will settle around its 4.0% target in the first two quarters of FY 2027. The central bank also revised up its inflation forecast for the fiscal year ending March 2026 by 10 basis points to 2.1%, largely due to the recent uptick in precious metal prices; underlying price pressures remain subdued.

No more further cuts expected ahead: The monetary policy committee decided to leave its monetary policy stance as ‘neutral’, though, as in the last meeting, one member voted to shift it to ‘accommodative’. Our panelists continue to think that the RBI will keep rates steady for the near future, with India already enjoying a “rare Goldilocks period” of low inflation and strong GDP growth, according to the RBI’s governor Sanjay Malhotra. In post-decision remarks to the press, Malhotra said rates are likely to remain at current levels over the next nine to 12 months. The RBI’s next meeting is set for 6–8 April.

Panelist insight: ANZ’s Dhiraj Nim and Sanjay Mathur said: “The MPC's pause today seems sensible and upholds its neutral stance. India's growth and inflation outlook is stable and healthy, with recent trade agreements reducing downside growth risks. With new economic data expected this month, it is prudent to wait and assess the economy's trajectory. We think rate cuts are likely complete unless new growth risks emerge.” HSBC’s Pranjul Bhandari and Aayushi Chaudhary commented: “We believe the RBI has pivoted to steady policy rates for the foreseeable future […]. Having said the above, we don't think RBI has turned hawkish. Even though the central bank raised inflation forecasts, it clearly mentioned that it was on the back of the rise in precious metals which is adding 60-70bp to inflation. Excluding that, inflation remains ‘benign’. Furthermore, the RBI said that it will continue to remain proactive with supplying enough liquidity, even pre-empting fluctuations due to government balances, currency in circulation, and FX intervention. A pre-emptive approach in itself can impact markets positively.”

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