RBI unanimous on status quo

Metro India News | MUMBAI

The Reserve Bank of India (RBI) released the minutes of its Monetary Policy Committee (MPC) meeting held from February 4-6, 2026, revealing a unanimous decision (with one dissent) to maintain the repo rate at 5.25% while continuing the neutral policy stance. This marked the third consecutive hold following cumulative rate cuts of 125 basis points earlier in the easing cycle, reflecting a balanced approach amid resilient domestic growth, benign inflation, and external uncertainties.

In an interview, MPC member Dr. Nagesh Kumar, Director of the Institute for Studies in Industrial Development, elaborated on the rationale behind the status quo. He described India's economic outlook as having "brightened considerably" since the December 2025 meeting, driven by several positive developments: stronger-than-expected provisional GDP estimates for FY2025-26 and Q3 momentum in manufacturing; resolution of U.S. tariff concerns through a recent India-U.S. trade deal that reduced reciprocal tariffs from higher levels (including punitive duties) to 18%; conclusion of long-pending India-EU FTA negotiations on January 27, 2026, expected to boost bilateral trade significantly; and supportive measures in the February 1, 2026, Union Budget, including incentives for manufacturing, a new data centers policy, tourism boosts, and sustained infrastructure capex. 

These factors, combined with announcements of massive investments in data centers and compute during the India AI Impact Summit, have enhanced growth prospects. Despite the improved outlook and headroom from benign underlying inflation (projected to remain under or around the 4% target), Dr. Kumar explained that the MPC opted for caution.

Key reasons included the impending release of overhauled data series—new CPI (base year 2024, released February 12, 2026) and revised GDP (base year 2022-23, scheduled for February 27, 2026)—which would provide clearer insights into inflation and growth dynamics. 

Additionally, transmission of the December rate cut was still underway, warranting time to assess its full impact before further action.Addressing the dissent from Professor Ram Singh, who favored shifting to an accommodative stance, Dr. Kumar noted broad unanimity within the MPC on supporting growth momentum through monetary policy alignment with overall economic objectives. He viewed the neutral stance as offering maximum flexibility—allowing moves in either direction based on incoming data—rather than limiting options. 

Differences on stance specifics were described as natural and not indicative of deep divisions. On market expectations of an "elongated pause" through calendar 2026, with potential hikes only in 2027, Dr. Kumar dismissed speculative forecasts, stressing that future decisions would be data-driven and consensus-based, not predetermined. He highlighted that sustained benign inflation would trigger discussions on further support, but the focus has shifted from revival to aiming for a higher growth trajectory. 

In his view, coordinated monetary and fiscal efforts are now needed to sustain and elevate momentum gradually.Overall, the minutes and Dr. Kumar's comments underscored a "Goldilocks" scenario of robust growth and contained inflation, tempered by global volatility (including geopolitical tensions and commodity price risks). The neutral stance positions the RBI to respond flexibly as new revised data emerges and transmission effects fully materialize, prioritizing stability while remaining open to calibrated easing if conditions warrant.