RBI's rate-cutting cycle likely over, long pause expected: BoB report

The RBI has likely concluded its rate-cutting cycle and is set for a long pause, a Bank of Baroda report states. The central bank's neutral stance and focus on growth over further cuts indicate a shift in monetary policy.

The Reserve Bank of India (RBI) has likely come to the end of its rate-cutting cycle and is expected to opt for a long pause, as there appears to be limited room to lower interest rates further unless the new series of CPI and GDP throw up unforeseen surprises, according to a report by Bank of Baroda.

Shift in Policy Focus

The report highlighted that recent policy signals from the RBI, including its neutral stance, indicate that the Monetary Policy Committee (MPC) is now focused on supporting growth while preserving financial stability, rather than continuing with rate cuts. It stated, "We believe that the RBI has come to an end of its rate cutting cycle and would now opt for a long pause."

RBI Governor, in his policy statement, noted that "Benign inflation provides the leeway to remain growth-supportive while preserving financial stability. We remain committed to... sustain the growth momentum." According to the report, this statement, along with the neutral policy stance, suggests that the MPC has reached the end of its easing cycle and will keep policy rates on hold for an extended period.

MPC Holds Rates Unchanged

The MPC unanimously decided to keep policy rates unchanged in its latest February meeting, following a 25 basis points cut in the previous meeting held in December 2025. The stance of monetary policy was retained at neutral, reflecting a balanced approach between growth and inflation risks. The repo rate is now unchanged at 5.25 per cent.

Liquidity and Future Outlook

On the liquidity front, the RBI reiterated that it would continue to maintain sufficient liquidity in the system as and when required.

The central bank also deferred providing its full-year growth and inflation forecasts to April 2026, as it is awaiting the release of the new CPI and GDP series later this month. According to the Bank of Baroda report, the April 2026 policy will offer more clarity on the outlook for full-year growth and inflation.

Given the current macroeconomic backdrop and revised inflation projections, the report believes that the RBI has concluded its rate-cutting phase and is now set to remain on pause for a prolonged period. (ANI)

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