India’s monetary policy panel should hold policy rates steady for the time being

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Subscribe to enjoy similar stories. In its February meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will deliberate on whether the trajectory of policy rates has reached an inflexion point from where an easing cycle can begin. With a new RBI governor at the helm, the MPC will consider the latest information on consumer price index (CPI)-based inflation and GDP growth available since the last meeting.

Average headline CPI inflation in the third quarter of 2024-25 at 5.6% was well above the target, though in line with RBI’s baseline estimate. The National Statistical Office’s first estimate placed real GDP growth at 6.4% in 2024-25, again largely in line with RBI’s forecast of 6.6%. Given these in-line outcomes, the MPC will decide the way forward based on its outlook on growth and inflation risks.

Near-term risks to price stability have risen since the December meeting. The rupee has depreciated by over 3%, weighed by renewed dollar strength and increased financial-market volatility amid heightened uncertainty around US tariff plans and their impact on inflation and rates. The US Federal Reserve has issued a hawkish forward guidance and signalled fewer rate cuts in 2025, triggering a risk-off mood among investors.

According to the baseline forecast of RBI, headline inflation is expected to hold above its 4% target for the next 6 months. High but easing food inflation and sticky core prices are likely to keep it in the 4.5-5% range during that period. A weaker rupee presents an upside risk to that trajectory.