Could RBI Reduce Repo Rate to 5% in the Upcoming MPC Meeting?
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Synopsis
As speculations rise about a potential reduction in the repo rate by the Reserve Bank of India, insights from a recent report hint at a possible cut to 5% in the upcoming monetary policy meeting. This could signal a significant shift in the economic landscape, especially amid ongoing inflation concerns.
Key Takeaways
- The RBI may reduce the repo rate to 5% in February.
- Inflation and economic growth trends are crucial in the decision-making process.
- Revisions to CPI and GDP base-year data are expected in February 2026.
- The RBI's current repo rate stands at 5.25% after a cut in December.
- Future growth is projected at 7.3% for FY26.
New Delhi, Dec 22 (NationPress) A report suggests that the Reserve Bank of India (RBI) may lower its policy repo rate by 25 basis points to 5 percent during its monetary policy meeting in February. This potential cut aligns with the RBI's dovish stance.
The Union Bank of India (UBI) highlighted that there is room for another 25 bps reduction either in February or April 2026, citing the central bank's consistent emphasis on benign inflation and weak underlying price pressures.
When accounting for approximately 50 bps inflation from gold, the underlying price pressures seem even more subdued, the report indicated.
"We expect the final 25bps rate cut could happen in February or April 2026. Considering the dovish policy guidance, we should not dismiss the chance of a final cut to a 5 percent repo rate during the February 2026 meeting, despite challenges in pinpointing the exact timing of such a cut," the report stated.
Uncertainty remains regarding timing, influenced by upcoming revisions to the Consumer Price Index (CPI) and Gross Domestic Product (GDP) base-year, which are due in February 2026. These revisions may lead the Monetary Policy Committee to adopt a cautious approach, reassessing inflation and growth trends once the updated data becomes available.
In December, the RBI's Monetary Policy Committee (MPC) had already reduced the repo rate by 25 bps, lowering it to 5.25 percent. The next MPC meeting is set for February 4–6, 2026.
The RBI has adjusted its FY26 growth forecast to 7.3 percent due to domestic factors such as income tax reform and an easing monetary policy, alongside a GST-driven rationalization that should support growth in the latter half of the fiscal year.
A recent analysis from Yes Bank noted that a revised consumer price index (CPI) with decreased food weight may limit the benefits from declining food prices, reducing the potential for further rate cuts unless there is a significant downturn in growth.
The RBI's strategy to maintain comfortable liquidity and align the operative rate with the repo rate is expected to persist.
Point of View
The anticipated repo rate cut by the RBI signifies a proactive approach towards managing inflationary pressures while fostering economic growth. It's crucial that the RBI balances these actions to ensure long-term financial stability.
NationPress
24/12/2025
Frequently Asked Questions
What is the current repo rate set by RBI?
As of December, the repo rate is set at 5.25 percent after a recent cut by the RBI.
When is the next MPC meeting scheduled?
The next Monetary Policy Committee meeting is scheduled for February 4–6, 2026.
What factors influence the repo rate decision?
Factors like inflation rates, economic growth, and consumer price index revisions significantly impact the repo rate decision.
What is the expected growth rate for FY26?
The RBI has revised its growth estimate for FY26 to 7.3 percent, driven by various domestic factors.
How does a repo rate cut affect consumers?
A repo rate cut usually leads to lower borrowing costs, which can benefit consumers through reduced loan interest rates.
