RBI’s cautious pause: Economists anticipate steady repo rate through 2026 amid inflation and currency pressures

A Reuters poll conducted between January 19 and 28 found most economists expected the Reserve Bank of India to keep its policy repo rate at 5.25% through 2026, following a cumulative easing of 125 basis points since February 2025. The survey of 70 economists showed 59 anticipated no change at the Monetary Policy Committee meeting scheduled for February 4–6, while 10 forecast a 25-basis-point cut and one predicted a 50-basis-point reduction. The poll projected headline inflation averaging 2.1% in the current fiscal year and rising to 4.0% the next, with GDP growth seen at 7.4% this year and moderating to 6.7% thereafter.

Economists cited persistently low inflation and solid expansion, largely driven by government spending rather than private-sector investment, as reasons the RBI had limited scope to loosen policy further. “The RBI MPC is in a very good place now, and there should be no inclination to act further to support growth,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership. He added that “the focus for RBI now would be to ensure that this easy policy is transmitted broadly ??into the economy.”

Policy makers have also been balancing monetary easing with defence of the rupee. Foreign portfolio investors pulled roughly $4 billion from Indian equities so far this year, and the currency slipped to a record low of 91.9650 to the dollar, prompting the central bank to intervene in foreign exchange markets. Some analysts argue those interventions have tightened domestic liquidity and blunted the pass-through of rate cuts. “Transmission has happened only in cases where the loans are linked with the repo rate…basically, banks are short of funds. They cannot reduce their deposit rates,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors. In response, the RBI announced measures to inject more than $23 billion of liquidity through bond purchases, FX swap operations and additional repo facilities.

While the Reuters poll signalled an extended pause at 5.25%, later policy decisions and market commentary through 2025 point to a somewhat different path. In October 2025 the RBI elected to hold its policy rate at 5.5%, with Governor Sanjay Malhotra describing the choice as the outcome of a detailed assessment of evolving macroeconomic conditions, according to reports by CNBC, India.com and The Economic Times. Those reports noted a moderation in headline inflation, which the RBI revised to an average of about 2.6% for the year, and emphasised that growth remained below the central bank’s aspirations.

Market strategists have since factored an end to the easing cycle into fixed-income forecasts. MUFG expects a modest rise in 10-year Indian government bond yields from levels around the mid-6% area to roughly 6.60% by March and nearer 6.75% by year-end, reflecting the view that the RBI has limited scope for further cuts and may keep policy rates steady for an extended period.

The policy outlook therefore remains shaped by a trade-off between sustaining momentum in activity and managing currency and liquidity pressures. Fiscal policy developments are also relevant: New Delhi has been pursuing trade talks with several partners and is widely expected to continue a path of fiscal consolidation in its Union budget, a stance that could influence macro balances and the central bank’s room for manoeuvre.

Taken together, the evidence points to an RBI that has eased policy materially since early 2025 but is cautious about further reductions until it is confident that lower rates are transmitting through the banking system and that external pressures on the rupee have abated.