New Delhi, Feb 2 (NationPress) The Reserve Bank of India (RBI) is gearing up for its monetary policy committee (MPC) meeting scheduled from February 4-6. As per insights from economists, it appears that the MPC will likely opt for a standstill on any policy rate reductions. This decision coincides with the central bank's focus on implementing direct strategies to address liquidity, bond stability, and currency-related challenges.

The central bank has already made a significant repo rate reduction by 125 basis points since February 2025, bringing it down to 5.25 percent.

Radhika Rao, Executive Director and Senior Economist at DBS Bank, commented, "Given that the government is steadfast on its fiscal consolidation trajectory, we do not foresee any substantial influence on the monetary policy's direction."

While the MPC made rate cuts in December 2025, it is anticipated that no further cuts will occur in February.

Rao further elaborated, "We predict that bond purchases will persist through this quarter and into April-June 2026. With the FY27 Budget announcing record-high borrowings, the central bank might prefer to be flexible and manage its money market operations adeptly to keep borrowing costs stable."

Despite ongoing trade tensions, growth momentum remains strong, although inflation has shown signs of recovery from its lows. The rupee continues to face pressure, hitting successive all-time lows. Rao noted that deposit mobilization has become increasingly challenging.

Overall, the Union Budget 2026 aims to maintain macroeconomic stability and continuity in policy. Fiscal consolidation is set to continue, with the center's debt-to-GDP ratio projected to decrease by approximately 0.5 percent, and the fiscal deficit expected to tighten to 4.3 percent of GDP.

Rao added that effective revenue and primary deficits are likely to strengthen further, and that lowering rates excessively could lead to a surge in repatriation of rate-sensitive portfolio investments.

The RBI recently introduced a series of liquidity-enhancing measures, infusing over Rs 2 lakh crore into the banking system to alleviate liquidity concerns. The central bank indicated it will employ a blend of open market bond purchases, a foreign exchange swap, and a variable rate repo operation to enhance liquidity conditions within the financial system. These actions follow a thorough assessment of current liquidity and financial circumstances.

According to SBI Research, even with the RBI's repo rate reduction of 125 basis points and a proactive injection of Rs 6.6 lakh crore this fiscal year via open market operations (OMO), bond yields have remained stubbornly high. This situation highlights that the current liquidity management has resulted in uneven transmission across different market segments.

"We recommend that the RBI conduct OMO in securities that are liquid to achieve a meaningful effect on yields. For instance, the present 10-year paper is at 6.48 percent for 2035. The RBI could focus on OMO in the preceding 10-year paper, which is 6.33 percent for 2035/immediate outgoing benchmark paper," the report suggested.