February 2026 RBI Policy: Repo Rate Held at 5.25%

7 Feb 2026 , 09:44 PM

Summary

The February 2026 RBI Monetary Policy saw the MPC unanimously keep the repo rate unchanged at 5.25% and maintain a “Neutral” stance, despite mixed signals on growth and inflation. While one member dissented in favour of an accommodative stance, the RBI chose caution amid a weak rupee and evolving inflation dynamics. GDP growth for FY26 was marginally raised to 7.4%, while the inflation estimate was nudged up to 2.1%, largely due to rising gold and silver prices. Liquidity support is likely to continue.

POLICY RUN-UP – IT WAS A CLOSE CALL ON RATES 

Ahead of the Monetary Policy announcement on 6 February, expectations were mixed. The RBI had valid reasons both to keep interest rates unchanged and to cut them by 25 basis points. 

On the side of keeping rates unchanged, the RBI believed that economic growth was strong. There were also concerns that inflation could move higher because of changes in how it is measured. In addition, the rupee had weakened beyond ₹90 against the US dollar. Cutting rates at such a time could have put further pressure on the rupee. 

At the same time, there were strong reasons to cut rates. The growth outlook depended on several industries performing better than last year, which would require cheaper funding. Also, the government planned to borrow around ₹17.2 trillion. Lower interest rates would have helped the government borrow at lower costs, especially as bond yields were rising. 

Against this backdrop, the RBI’s Monetary Policy Committee met between 4 February and 6 February. In the end, the committee unanimously decided to keep the repo rate unchanged at 5.25%. The policy stance was also kept “Neutral.” However, Professor Ram Singh once again dissented, arguing that the stance should be changed to “Accommodative.” 

With that context, let us now look at the key highlights of the Monetary Policy Statement. 

KEY HIGHLIGHTS OF THE FEBRUARY 2026 MONETARY POLICY 

• The RBI kept the repo rate unchanged at 5.25%. Since the repo rate was unchanged, other linked rates also stayed the same. The Standing Deposit Facility (SDF or reverse repo) remains at 5.00%, while the Marginal Standing Facility (MSF) and the bank rate continue at 5.50%. 

• The policy stance remained “Neutral”. Five members supported this view, while Professor Ram Singh voted to change the stance to “Accommodative,” as he has done earlier. 

• The RBI slightly increased its GDP growth estimate for FY26 from 7.3% to 7.4%. This means the growth forecast has been raised by a total of 90 basis points over the last three policy meetings. 

• The inflation forecast for FY26 was also raised slightly, by 10 basis points, to 2.1%. The RBI said this was mainly due to higher gold and silver prices, which could push core inflation up by 60–70 basis points. 

• System liquidity remains in surplus at about ₹75,000 crore, but this is still below the RBI’s comfort level of 1% of net demand and time liabilities (NDTL). Because of this, the RBI may continue with liquidity support measures. 

MPC RAISES FY26 INFLATION ESTIMATE BY 10 BPS TO 2.1% 

After cutting the inflation estimates for FY26 aggressively by 280 bps from 4.8% to 2.0% between February 2025 and December 2025; the RBI has changed the direction of rates. It has marginally raised the estimate for FY26 CPI inflation by 10 bps to 2.1%. This is not so much about the change in methodology in CPI inflation, which will only be visible with a lag.  

This 10-bps hike is to factor in the impact of 60-70 basis points on core inflation, on account of a sharp rally in gold and silver in the last few months. The assumption on deflation in food prices continues to stay, although the extent of deflation is likely to moderate. In the last one year, gold rallied by over 70% and silver rallied by more than 200%.  This has led to core inflation staying robust. Overall, the RBI expects that the inflationary impact in the last quarter would be entirely driven by core inflation; led by gold and silver.  

The FY26 headline inflation is pegged at 2.1%. For the next 3 quarters, the projected inflation is; Q4FY26 (3.2%), Q1FY27 (4.0%), and Q2FY27 (4.2%). The broad expectation is that of inflation rebounding in later quarters due to a mix of core inflation impact and the revision in the methodology of CPI, which reduces food weightage by over 900 bps. 

RBI MPC RAISES FY26 REAL GDP GROWTH BY 10 BPS TO 7.4% 

For FY26, the real GDP growth has been upped by 10 bps to 7.4%, which is in line with the estimates put out by the MOSPI. One will get a clearer picture when the Q3 real GDP projections and the second estimate of FY26 GDP growth are published on 28-February. While global headwinds have been a concern for the RBI, there are several mitigating factors.  

Firstly, the Indo-US trade deal has been signed and that targets total Indo-US trade at $500 billion. Secondly, India has already inked a trade deal with the EU, and that is also likely to be growth accretive. Thirdly, domestic consumption remains robust and that has been driving growth even when exports to the US have been tepid.  

Along with raising the FY26 real GDP growth estimate by 10 bps to 7.4%; the RBI has also raised the real GDP growth estimates for Q1FY27 to 6.9% and Q2FY27 to 7.0%. The growth projections for the first two quarters of FY27 have been hiked by 20 bps each; which means that the full year FY27 growth should also be closer to the FY26 growth rate. 

PARADOX ON THE LIQUIDITY FRONT 

There appears to be a real paradox on the liquidity front. At the longer end; the 125-bps rate cut since February 2025 has resulted in nearly 105 bps being transmitted to the customers in the form of lower rates. That is an impressive bit of transmission. However, the challenge is more at the short end. The liquidity surplus stands at ₹75,000 crore, which is well below the RBI comfort level of 1% of NDTL (net demand and time liabilities). That may still take some time to achieve, and till then, the RBI is likely to continue infusing liquidity into the system through OMOs and forex swaps. 

Due to the above paradox, we have seen a situation where the bond yields have been scaling up, despite the RBI cutting rates on a persistent basis. However, that is more due to the liquidity tightness at the short end and the selling in bonds in the aftermath of Bloomberg putting off its decision to include Indian bonds in the global CGAI index. 

KEY MEASURES ANNOUNCED BY THE RBI AS POLICY ADJUNCT 

Over last few years, the RBI has been announcing key policy measures outside the ambit of the policy statement. Here are some key announcements. 

• To strengthen urban cooperative banks (UCBs), RBI announced raising limits on unsecured loans, loans to nominal members, and removal of tenor and moratorium requirements on home loans given by Tier-3 and Tier-4 UCBs. 

• NBFCs not accepting public deposits or without customer interface will be exempted from registration if asset size is under ₹1,000 crore. 

• The limit of ₹2.50 Trillion for debt under the voluntary retention route (VRR) has been removed and it is likely to boost FPI flows. Overall General limit continues to stay. 

• A comprehensive framework is expected for derivatives on corporate bond indices (as promised in the Union Budget) and more flexibility to authorized dealer banks and standalone primary dealers (SPDs) is also expected to be put out shortly. 

The decision to hold rates at 5.25% was not surprising.  One must await the minutes on 20-February for the inside story of how the decision was debated by the members of MPC.