The Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) is scheduled to be held between 4 and 6 February. According to economists, in this meeting RBI is expected to put a pause on the reduction in policy interest rates. However, the central bank can take direct steps to manage liquidity, bond market stability and currency risks.

RBI has reduced the repo rate by a total of 125 basis points from February 2025 till now, due to which the repo rate has come down to 5.25 percent.

DBS Bank Executive Director and Senior Economist Radhika Rao said that the government remains on its path of fiscal consolidation (reducing the fiscal deficit), so no major change in the direction of monetary policy is expected.

The MPC had reduced interest rates in December 2025, but further cuts may be avoided in the February meeting.

Radhika Rao said that RBI may continue buying bonds during this quarter and April-June 2026. In the budget of FY 2027, the government’s borrowing has been said to remain at a record level, hence the RBI would like to keep the cost of borrowing under control by being cautious in the steps to the money market.

Despite trade- tensions, economic growth has persisted, but inflation has now come down from its lowest level. At the same time, the rupee is under continuous pressure and is reaching new lows. Apart from this, mobilizing deposits also remains a challenge for banks.

According to economists, Union Budget 2026 maintains the stability of the economy and shows continuity in policies. Fiscal consolidation will continue, with the central government’s debt-to-GDP ratio projected to decline by about 0.5 percent and the fiscal deficit at 4.3 percent.

Radhika Rao said that revenue deficit and primary deficit may improve further. Also, further cuts in interest rates may drive out rate-sensitive portfolio investments (foreign investments), so the RBI is cautious.

RBI has recently announced several measures to increase liquidity, under which more than Rs 2 lakh crore will be injected into the banking system. For this, bond purchases, foreign exchange swaps and variable rate repo operations will be used in the open market. These steps have been taken after reviewing the current liquidity and financial situation.

According to SBI Research, RBI has reduced the repo rate by 125 basis points and infused liquidity of Rs 6.6 lakh crore through OMO in the current financial year. Despite this, there has not been much decline in bond yields, because the impact of liquidity was not equal in all parts of the market.

SBI Research suggests that RBI should do OMO in such bonds which are more liquid, so that the right impact is visible on the yield. For example, RBI can do an OMO in the old 10-year bond at 6.33 per cent (2035) instead of the current 10-year bond at 6.48 per cent (2035).