According to ICICI Bank’s Economic Research Group, policy is expected to remain on hold for a longer period of time after the Reserve Bank of India’s Monetary Policy Committee (MPC) recently cut the repo rate by 25 basis points to 5.25%, and additional easing is possible only if inflation continues to remain lower than expected.
Analyzing the December MPC minutes released on Friday, the report said: “We expect the MPC to remain on pause for a longer period of time. Any additional easing is possible only if inflation data remains consistently below the current track.” The February meeting is likely to maintain the status quo, allowing the impacts of the new GDP and CPI series on the headline numbers to be assessed. Meanwhile, RBI will ensure liquidity to help in lending rate transmission through OMO purchases and FX swaps.
The minutes highlighted rising favorable inflation on favorable food prospects and softening global oil prices. However, members warned that prolonged low inflation could put pressure on margins and investment, especially for smaller firms. Growth concerns come to the fore, with high-frequency indicators pointing to softness in H2 FY26 despite a strong Q2 performance.
In the December policy, the MPC unanimously cut rates, which came amid “a rare Goldilocks period” of high growth and low inflation, in the words of Governor Sanjay Malhotra. Q2 FY26 GDP reached six-quarter high of 8.2%, driven by consumption and GST rationalization. RBI has raised the growth forecast for FY26 to 7.3% (up 0.5%) and cut the CPI forecast to 2.0% (from 2.6%).
Future action will strike a balance between growth support and sustainability, taking a data-driven approach. Real interest rates are near the lower end of the RBI’s comfort range, so unless there is a major change in the inflation situation, chances of an aggressive cut are slim.
Comments are closed.