RBI expected to maintain prolonged rate pause, supported by low inflation, stable growth outlook: Report

The likelihood of a monetary policy rate hike remains low due to subdued core inflation, according to a report by ICICI Bank Global Markets. The Reserve Bank of India is expected to maintain a prolonged pause in its rate cycle into FY2026–27, with greater emphasis on injecting durable liquidity to ensure effective monetary policy transmission, according to the report, cited by ANI.ICICI Bank Global Markets also stated that the risk of a sharp increase in inflation does not appear to be significant, especially in the wake of the recent readings of core inflation based on the new CPI series. It added that the recent increase in oil prices, although significant, does not change the outlook much and still provides a reason to keep interest rates unchanged.Minutes from the latest monetary policy meeting indicated that policymakers are more optimistic about economic growth, supported by strong high-frequency indicators and recent trade agreements with the US and the EU. Reflecting this improved outlook, growth projections for the first half of FY2026–27 have been revised upward by 20 basis points.Despite a marginal upward revision in CPI projections, most members of the Monetary Policy Committee continued to view the inflation outlook as manageable. The revision was largely attributed to higher precious metals prices. Meanwhile, the new CPI series showed some upward pressure in food inflation, but core inflation remained lower than expected.The improved growth outlook reduces the likelihood of further rate cuts, but the report said interest rates are expected to remain stable for an extended period, with inflation projected to stay close to the central bank’s target. "The focus of MPC is likely to be on transmission and use of different tools to ensure the same. Since the December rate cut, bond yields and wholesale deposit rates have moved the other way with recent inching up of oil prices not helping," said ICICI Bank Global Markets in their report.Earlier this month, on February 6, the Monetary Policy Committee of the Reserve Bank of India unanimously decided to keep the repo rate unchanged at 5.25 per cent, while maintaining a neutral policy stance.