Will RBI Lower Interest Rates Again? Insights on Upcoming Monetary Policy Decisions

Potential Rate Cut on the Horizon

New Delhi: According to a recent analysis, the Reserve Bank of India (RBI) is likely to reduce the policy repo rate by 25 basis points, bringing it down to 5 percent during its monetary policy meeting in February.

The Union Bank of India (UBI) highlighted in its report that there is potential for a final cut of 25 basis points either in February or April 2026, attributing this to the central bank's consistent mentions of low inflation and subdued price pressures.

When accounting for approximately 50 basis points of inflation attributed to gold, the underlying price pressures seem even less intense, the report noted.

"We anticipate a final 25bps rate reduction in either February or April 2026. Given the dovish stance of the policy, we cannot dismiss the possibility of a rate cut to 5 percent in the February 2026 meeting, although predicting the exact timing of such a cut is challenging," the report stated.

The bank also pointed out that uncertainty regarding timing is influenced by upcoming revisions to the Consumer Price Index (CPI) and Gross Domestic Product (GDP) base year, expected 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 is available.

In December, the RBI's Monetary Policy Committee (MPC) had already lowered the repo rate by 25 basis points to 5.25 percent, with the next meeting scheduled for February 4–6, 2026.

The RBI has adjusted its growth forecast for FY26 to 7.3 percent, citing domestic factors such as income tax reforms and a supportive monetary policy, alongside a GST-driven fiscal push, which are expected to sustain growth in the latter half of the year.

A recent report from Yes Bank indicated that a new CPI with reduced food weightage might limit the benefits from declining food prices, potentially restricting further rate cuts unless there is a significant downturn in growth.

The RBI is expected to maintain its strategy of ensuring comfortable liquidity and aligning the operative rate with the repo rate.