RBI’s Monetary Policy Review

On Feb 06, 2026, RBI’s Monetary Policy Committee (MPC) took following policy decisions:

The RBI’s MPC voted unanimously to keep the repo rate unchanged at 5.25%. The MPC also decided to continue with the neutral monetary policy stance.

Executive summary of RBI’s press releases/ press conference:

Global Economy:

• World economy is expected to grow slightly faster in 2026, helped by strong tech investments, easy financial conditions, and government spending.
• Rising political conflicts and trade disputes are disrupting global economic stability.
• Price pressures vary across countries; inflation is still above target in most advanced economies.
• Central banks are at different stages of reducing interest rates as they near the end of their easing cycle.

Domestic Growth:

• India’s economy is improving steadily, with real GDP growth estimated at 7.4% in FY26, higher than the previous year.
• Economic activity in FY27 is expected to remain strong supported by healthy agriculture sector, improving corporate performance, and resilient construction and services sector.
• Recent India–EU Free Trade Agreement (FTA) and potential India–US trade deal is expected to aid exports.
• GDP growth forecast for Q1 FY27 and Q2 FY27 raised by 20 bps to 6.9% and 7.0%, respectively.
• Full-year FY27 forecast deferred to April 2026 pending release of the new GDP series.

Source: RBI

Domestic Inflation:

• Headline CPI inflation stayed low in Nov–Dec 2025, though it rose slightly (by ~1%) due to a smaller decline in food prices.
• Food supply conditions are positive with good kharif output, healthy rabi sowing, strong foodgrain stocks, and adequate reservoir levels.
• Core inflation expected to stay stable, except for possible swings from precious metal prices.
• CPI inflation for FY26 is projected at 2.1%, with Q4 at 3.2%. For Q1 and Q2 of FY27, projections are 4.0% and 4.2%, respectively.
• A new CPI series (base 2024=100) will be released on Feb 12, 2026. The full-year FY27 inflation projection will be shared in April 2026 after the new series is available.

Liquidity Conditions:

• Banking system liquidity stayed in surplus of Rs 70,000 cr (daily average) since the December 2025 MPC meeting.
• Money market yields rose in Jan 2026 due to lower liquidity, bunching of redemptions, and typical year-end effects.
• The RBI will stay proactive in managing liquidity to ensure adequate funds for economic activity and smooth monetary transmission.

Fixed Income Outlook:

• We believe the rate‑cutting cycle has bottomed out and therefore do not expect any further rate cuts in FY27.
• Liquidity conditions have improved significantly, which leads us to believe that no additional liquidity‑support measures are likely from the RBI in Q4 FY26. However, there is still scope for longer‑term (durable) liquidity injections in FY27.
• With the RBI at the end of the rate‑cutting cycle and heavy bond supply in the market, we expect continued pressure on bond yields in the near term.

Source: RBI