RBI MPC Meeting 2026: Rate Pause at 5.25% Expected

Introduction to the February 2026 MPC Meeting

The Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, is set to announce its policy decision on February 6, 2026. After a significant easing cycle throughout 2025, financial markets and economists widely anticipate that the central bank will pause its rate cuts, holding the repo rate steady at 5.25%. The decision comes amid a stable domestic economic environment, characterized by controlled inflation and resilient growth, shifting the policy focus from interest rates to managing liquidity conditions in the banking system.

The Rate Easing Cycle of 2025

To understand the context for the expected pause, it is essential to look back at the policy actions of the previous year. Since February 2025, the RBI has aggressively supported economic growth by delivering a cumulative 125 basis points (1.25%) reduction in the repo rate. This cycle of easing began with cuts in February and April, followed by a larger 50-basis-point reduction in June. The final cut of this cycle came in the December 2025 meeting, when the MPC voted unanimously to lower the rate by 25 basis points from 5.50% to its current level of 5.25%. This series of reductions was aimed at stimulating economic activity while inflation remained benign.

Favourable Domestic Economic Conditions

The case for a rate pause is strengthened by a supportive macroeconomic backdrop. Retail inflation, as measured by the Consumer Price Index (CPI), has remained comfortably below the RBI's 4% target for nearly a year, standing at just 1.33% in December 2025. On the growth front, the economy has demonstrated strong momentum, with the RBI projecting real GDP growth of 7.3% for the 2025-26 fiscal year. Furthermore, the recent Union Budget has reinforced the government's commitment to fiscal consolidation without compromising on growth-supportive measures, providing the RBI with greater policy stability.

The Shift from Rate Action to Liquidity Management

With inflation under control and growth on a firm footing, the MPC's attention is now turning towards ensuring that the benefits of past rate cuts are fully transmitted to the broader economy. Despite the 125-bps policy easing, financial conditions have remained tight due to several factors. Government bond yields have been sticky, borrowing costs remain elevated, and foreign portfolio investors (FPIs) have been net sellers, leading to capital outflows. Consequently, the policy discourse has shifted from whether to cut rates further to how to manage systemic liquidity more effectively. The central bank is expected to use tools like Open Market Operations (OMOs) to inject durable liquidity and anchor money market rates.

Key Economic Indicators Overview

Navigating Uncertainty from New Base Years

Adding a layer of complexity to the RBI's forecasting are upcoming revisions to key economic data. The CPI data from January 2026 will be based on a new 2024 base year, which economists caution could introduce an upward bias to inflation readings. Similarly, GDP data is transitioning to a new 2022-23 base year. Given these changes, the MPC is likely to adopt a 'wait-and-watch' approach, holding off on any significant revisions to its inflation and growth projections until the new data series stabilizes and provides a clearer picture.

Global Trade and External Sector Stability

The external environment has become more favourable for India. The finalization of major trade agreements with the United States and the European Union is expected to boost exports, improve capital inflows, and lend stability to the rupee. This external comfort provides the RBI with greater flexibility to focus on domestic liquidity management without being pressured into further rate action to support the currency or external balances. Governor Malhotra has previously noted that India's reliance on the external sector is minimal, highlighting the economy's inherent resilience.

Outlook for Investors

In this environment of a likely policy pause, financial experts are advising investors to prioritize capital safety and stable returns. Many see the current period as an opportune time to lock in fixed deposit rates before any potential future downward adjustments. The market will be closely scrutinizing Governor Malhotra's commentary for forward guidance on the RBI's liquidity stance, its assessment of inflation under the new base year, and its overall economic outlook.

Conclusion

As the Monetary Policy Committee concludes its deliberations, the consensus points towards a pause, maintaining the repo rate at 5.25%. The decision would signal the end of the current rate-cutting cycle and a strategic pivot towards addressing liquidity constraints to ensure monetary policy transmission. The key focus for markets will be the RBI's forward guidance, particularly its strategy for managing liquidity and its updated assessment of growth and inflation dynamics in light of new statistical base years and a changing global landscape.