RBI unlikely to play Santa again in February

MUMBAI: Economists expect the Reserve Bank of India to keep its key policy rate unchanged at 5.25% in February, as inflation begins to rise from record lows and growth remains resilient, multiple economists said. They said the central bank will likely preserve policy space amid uncertainty over trade talks and upcoming changes to the inflation gauge. Eight of 10 economists expect RBI not to cut rates in the next monetary policy committee meeting scheduled between February 4 and 6, within a week of FM presenting the Union Budget.Consumer price inflation picked up to 0.71% YoY in November from 0.25% in October, driven by persistent food price deflation and weak core inflation. Most economists said headline inflation appears to have bottomed out in October on account of lower food prices and one-time GST cut adjustment and expect it to inch up but will be below RBI’s 4% medium-term target. RBI has cut the repo rate by 125 bps since the easing cycle began in February stating that it is to support growth as inflation remained benign.WHY A PAUSE NOW?Barclays said the bar for another cut is high. “We expect the RBI to get surprised on the higher side versus its latest inflation forecast, making it tougher to justify a cut in the February meeting,” it said.Yes Bank, on the other hand, has flagged global factors and currency risks. “We do not think that RBI would want to cut rates further despite the Fed delivering a rate cut... Certain level of interest rate differential between US-India remains necessary to attract foreign inflows,” it said. The interest rate differential is 1.5-1.75% 125989679The State Bank of India report noted that RBI has kept the door open for future moves but sees no immediate action. “Repo rate at 5.25% will be lower for longer,” it said. Fitch’s research arm BMI is the only one so far to project that the repo rate is near its terminal level.Care Ratings sees scope for easing but expects caution. “Even though there is scope for another 25 bps rate cut based on inflation projection, we expect the MPC to pause and preserve policy space for a future cut only if the growth outlook worsens,” it said. RBI has projected 7.3% growth for FY26.IDFC expects a pause given strong growth prospects. “We project FY26 GDP growth at 7.6%, even without a trade deal. A rate cut will only become likely if downside risks to growth materialise,” it said.RBI has warned that prolonged tariff pressures could add to inflation risks, noting that a 5% depreation in the rupee could raise headline CPI by 0.35%. Economists said the upcoming revision of the CPI basket and weights could also alter inflation dynamics. The new CPI series will be released in the first quarter of 2026, with 2024 as the base year.Economists at Bank of Baroda and Kotak Mahindra Bank suggested that there is room for a rate cut in February.Nomura expects a pause in February and 25 bps cut in April, while ICRA expects fiscal cues to guide policy. “Our base case suggests a pause in the MPC’s February 2026 policy review,” it said.