RBI MPC Meeting: Central Bank Likely to Hold Rates Steady as India–U.S. Trade Deal Eases Pressure for Further Cuts

The Reserve Bank of India begins its three-day Monetary Policy Committee meeting this week, with the policy decision scheduled for Friday. Market participants largely expect the central bank to maintain the policy repo rate at 5.25%, after reducing it by a cumulative 125 basis points over the past year.

Status Quo Expected

Most economists anticipate no change in rates as growth remains stable and inflation stays within the central bank’s comfort range. A recent trade agreement between India and the United States has also reduced the need for immediate monetary support. The deal is seen easing external risks that earlier raised concerns around exports and investment momentum. This has anchored expectations of a no change decision from the RBI MPC meeting that is slated to be announced on February 6.

India’s GDP growth is projected around the 7% mark for the current financial year, while consumer inflation continues to remain below the medium-term target of 4%. At the previous policy review, Governor Sanjay Malhotra described the economy as operating in a balanced phase with steady growth and contained prices.

Focus Shifts To Transmission

With substantial easing already delivered, attention has moved to ensuring that earlier rate cuts translate into lower borrowing costs for businesses and households. Bond yields have remained elevated despite rate reductions, limiting the full benefit of policy easing. The benchmark 10-year government bond yield has seen only modest movement over the past year. Higher government borrowing and liquidity tightness have also kept funding costs firm for banks and corporates.

Liquidity Support In Focus

Analysts expect the RBI to rely more on liquidity tools rather than further rate cuts. Measures such as open market bond purchases and liquidity injections could be used to stabilise yields and support smoother transmission. The approach signals continuity in policy, with the central bank balancing growth support and financial stability while avoiding additional rate action for now. The MPC outcome on Friday will provide clarity on the central bank’s stance for the months ahead.