Against a backdrop of shifting global conditions and domestic market pressures, expectations are building that the Reserve Bank of India will keep its policy rate unchanged in the upcoming monetary policy decision.
According to a report by State Bank of India, the Monetary Policy Committee is expected to maintain a status quo on the repo rate in its policy announcement scheduled for Friday. The report points to continued global economic uncertainty, rising government bond yields, and volatility in the domestic currency as key reasons behind the expected pause.
The report said that despite earlier easing of policy rates, the central bank is likely to stay put this time as several macroeconomic and global challenges persist. It noted that government bond yields have continued to harden in recent periods, even after policy rate cuts.
It also highlighted that the impact of Open Market Operations may depend on the selection of eligible securities, even if the total liquidity injected remains the same. This could weaken the transmission of monetary policy actions. As a result, SBI said, “RBI is thus likely to maintain status quo in the upcoming policy”.
One major development since the last policy meeting has been the finalisation of the EU-India and US-India trade deals. These agreements have reduced tariffs on Indian goods sharply from 50% to 18%. The report said India now has one of the lowest tariff rates among Asian economies, which could improve export competitiveness and trade prospects.
However, the report cautioned that global uncertainty remains high. It referred to the Geo-Economics Stress Index, which shows that elevated uncertainty can lead to economic stress after a lag of 3–4 months, indicating possible near-term risks.
On commodities, metal prices have recovered after a sharp sell-off last week, adding complexity to the inflation and growth outlook. The report also noted that slack in the labour market, stagnant real disposable incomes, and lower inflation pressures could lead to rate cuts by the US Federal Reserve, influencing global capital flows and currency movements.
During this period, the Indian rupee has remained volatile, moving between 89 and 92 per dollar over the last 2 months. The currency has weakened by 5.8% against the US dollar since April 2, 2025, following broad US tariff hikes. However, it strengthened by more than Re 1 after the India-US trade deal reduced tariffs to 18%.
On inflation, the report said revised CPI weights suggest a marginal rise of 20–30 basis points in overall CPI. In months with higher food inflation, the new CPI could be lower by 20–30 basis points.
Taking these mixed signals into account, the report said the RBI is likely to remain cautious and keep rates unchanged. The MPC meeting is being held over 3 days from February 4 to 6, with the policy decision due on Friday, February 6.
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