RBI MPC Preview: India-US trade deal eases growth fears; status quo likely

The Monetary policy committee (MPC) of Reserve Bank of India (RBI) shall announce the policy outcome on Friday, February 06. This will be the first policy after the union budget, mega trade deals with the US and European Union. The RBI’s growth-supportive stance showed up in front-loading of 125 basis points (bps) of rate cuts in this cycle.

Now, concerns around growth fade in the wake of the long-pending India-US trade deal, we believe policy easing—purely from a macroeconomic standpoint—may not be warranted at this juncture while the case for maintaining status quo remains strong, said JM Financial.

"Elevated yields are unlikely to respond to policy easing and are expected to harden towards 7 per cent considering the government’s higher-than-expected borrowing programme. The RBI will continue to use liquidity management as a primary tool to manage volatility in yields while transitioning into an extended pause in this cycle," it said.

With growth concerns easing after the long-awaited India–US trade deal, the case for further monetary easing appears limited for Sanjay Malhotra led MPC amid strengthening expectations of a status quo policy stance. Elevated government borrowing is likely to keep bond yields firm, reducing the effectiveness of rate cuts and shifting the RBI’s focus toward liquidity management.

The RBI could opt for a pause in the February 2026 MPC. Even as global macro and market narratives continue to swing, the MPC faces a more supportive external backdrop, aided by the US–India trade resolution, which should help stabilize the current account, FPI flows, and the rupee, said Emkay Global Financial Services.

Inflation is likely to edge higher as favorable base effects fade, while underlying growth drivers remain mixed despite a resilient headline GDP, it added. "Monetary transmission remains weak despite a fairly deep easing cycle and sustained liquidity infusion, and continues to be the key policy constraint. We expect liquidity to ease to Rs 2.4 lakh crore by end March 2026, limiting the need for more  infusion."

However, Nirmal Institutional Equities did not rule out the possibility of a 25 bps rate cut in FY26, the room for a rate cut may be closing in with high frequency indicators suggesting some cyclical recovery, credit growth bottoming out, announcement of the US-India trade deal and CPI inflation under the new series likely to be 20-30 bps higher at 4.3 per cent in FY27, it said.

"The RBI may announce further liquidity infusion measures beyond the policy as liquidity remains below previous easing cycles. The US-India trade deal and the ensuing rupee stability provides some solace as liquidity infusion thus far has been neutralised by forex intervention," Nirmal Bang added.

Inflation may edge up as base effects fade, while growth signals remain mixed despite resilient headline GDP. Weak monetary transmission continues to constrain policy action. Although a small rate cut in FY26 cannot be ruled out, most indicators point to a pause, with the RBI adopting a cautious, wait-and-watch approach amid global uncertainty.

Nuvama Institutional Equities is also expecting a status quo stance with transmission to bank lending rates is in progress and bond yields have been quite sticky. The central bank is likely to focus more on liquidity management than rate action. The trade deal between US and India shall help support foreign flows and ruppe , which gives RBI leeway to manage domestic liquidity.

"Meanwhile, the economy is bottoming out, but the recovery is yet to become broad-based. Furthermore, the global backdrop remains far from certain and general market volatility is elevated. Accordingly, the RBI is likely to remain in a wait-and-watch mode," it adds.

The upcoming RBI MPC meeting is expected to reinforce a status-quo approach on interest rates, allowing the central bank to assess the impact of recent fiscal measures. From an MSME and NBFC standpoint, the  Budget has set the tone for growth, but its success will depend significantly on how monetary policy complements fiscal intent, said Deepak Aggarwal, Co-CEO, and CFO at Moneyboxx Finance.

"While higher government borrowing may exert pressure on bond yields, it also underscores the importance of active liquidity management by the RBI to prevent crowding out of private credit. We anticipate the RBI will maintain a balanced stance supporting growth while remaining vigilant on inflation," he adds.