The RBI firmly strapped rate cuts on the doorstep on Friday.
Benchmark repo rate stands pat at 5.25%, while the policy stance continues to be neutral. The standing deposit facility rate stands at 5%, while the marginal standing facility rate and the bank rate were fixed at 5.50% each.
With a new data series for both GDP and inflation expected this month, the RBI's Monetary Policy Committee (MPC) refrained from giving annual FY27 forecasts. While it did provide estimates for the first two quarters of next fiscal, annual estimates will come in only during the RBI's April policy review.
Real GDP forecasts are raised upwards for next fiscal year's Q1 and Q2 to 6.9% and 7%, respectively, while inflation estimates too were raised slightly upwards to 4% and 4.25%, respectively.
As Governor Sanjay Malhotra noted, though, GDP growth is expected to moderate and potential growth is holding up thanks to sustained public sector capital expenditure and the boost from two major trade agreements (the EU and the US). The monetary policy calculus also remains finely balanced.
"A calibrated uptick in retail inflation further limits the case for near-term easing. In this context, the MPC is likely to stay in wait-and-watch mode, keeping the repo rate on hold, as the RBI's room for additional cuts remains constrained," Malhotra reasoned.
None expected the RBI to cut rates, yet markets remained in the red.
Malhotra's optimistic view on deficit, borrowings, growth, inflation and everything else attempted to gently push sentiment like a handcart, but equities continued to roll down the bridge. While the Sensex crashed over 380 points, Nifty fell over 127 points in early trade. Particularly, the Nifty Bank index fell as the RBI did not announce any new liquidity measures.
Liquidity was in surplus of Rs 70,000 crore in December and as the RBI governor noted, the central bank undertook several durable liquidity augmenting measures in January and Malhotra further assured the markets to meet liquidity needs on a pre-emptive basis.
Despite there being no rate cuts, Friday's policy stands out for a smattering of small initiatives that the RBI governor announced.
Perhaps with an eye on exports, the RBI proposed to double the limit for collateral-free unsecured loans for MSMEs from Rs 10 lakh to Rs 20 lakh. The move, coming close on the heels of union budget's Rs 10,000 crore equity fund for MSMEs, indicates the intent to lend a hand for small, micro and medium businesses to focus on growth and productivity without worrying about funding.
Next, NBFCs having no access to public funds and no customer interface with an asset size not exceeding Rs 1,000 crore will be exempted from registration with the RBI. This is significant, as it prevents creation of companies purely for the purpose of investing. It also proposed to issue regulatory framework for corporate bond indices derivatives, besides issuing revised guidelines for authorised dealer banks and standalone dealers.
Broadening credit access, the RBI allowed banks to lend to REITs. Until now, banks were restricted from extending direct credit to REITs with financing done via special purpose vehicles.
The RBI governor also proposed to introduce a framework to compensate customers up to Rs 25,000 for losses incurred on small-value fraudulent transactions, besides offering to remove the tenor and moratorium-related requirements on housing loans given by tier-III and IV urban cooperative banks.
Despite policy easing, government bond yields were persistently hardening and though Malhotra didn't explicitly mention it, the fact that high gross borrowing of both the Centre and states remains a concern.
System liquidity was in surplus as on December 2025 averaging Rs 0.6 lakh crore in January as against Rs 0.8 lakh crore in December. And even though the RBI has been intervening through VRR auctions and considering CRR, term repo, buy/sell swaps, the total liquidity injection stood at about Rs 6.6 lakh crore, which according to SBI Research is unprecedented and is the largest OMO in the history of monetary management. Still, bond yields are refusing to budge.
Meanwhile, the risks of limited transmission, low visibility on a turnaround in FDI flows, a still-reasonably good growth narrative, and the need to build buffers amid an uncertain global environment should keep the MPC on a prolonged pause.
While room for a final rate cut could emerge with the new CPI series, Standard Chartered Bank believes there may not be adequate incentive for this. Its analysis shows that by applying new weights to the existing sub-index levels in the new CPI series, FY27 headline inflation could be lower by 30-40 bps, vs forecasts of 4.1%, ceteris paribus. However, as factors such as expanded coverage and methodology changes would also impact final CPI inflation, we prefer to wait till the final release rather than act based on assumptions.
