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The Reserve Bank of India (RBI) on Friday decided to maintain the key policy repo rate at 5.25 per cent, which follows a period of rate cuts that totalled 125 basis points. The decision to keep policy rates unchanged at the RBI's latest Monetary Policy Committee (MPC) meeting was largely in line with market expectations, with economists pointing to emerging inflation risks and stable growth as key drivers behind the central bank’s cautious stance.

Vikram Chhabra, Senior Economist at 360 ONE Asset, said the RBI’s decision to keep policy rates unchanged was broadly in line with expectations.

“Since the previous meeting, the growth outlook has remained largely stable, while upside risks to inflation have emerged amid rising commodity prices. In this context, it is reasonable for the RBI adopt a wait-and-watch approach until greater clarity emerges on the macroeconomic outlook,” Chhabra said.

He added that with both inflation and GDP series scheduled for revision, it would be prudent for the Central Bank to base policy decisions on updated datasets. “Broadly, we still see room for at most one additional rate cut, provided the inflation outlook remains benign. Going forward, policy focus is likely to shift toward more effective liquidity management.”

Echoing similar views, Garima Kapoor, Deputy Head of Research and Economist at Elara Capital, said the RBI is prioritising the transmission of earlier rate cuts while monitoring evolving inflation trends.

“Focusing on effective transmission of rate cuts already taken and being encouraged by the healthy growth trajectory in the economy RBI's MPC decided to keep repo rate unchanged while awaiting new GDP and CPI series. With inflation expected to rise hereon amid normalisation of food prices and adverse base effects, the scope for further rate cuts has shrunk,” Kapoor noted.

She added that only a major shift in the growth-inflation balance could prompt another rate cut. “For now, we expect a prolonged pause from the RBI.”

Meanwhile, Madhavi Arora of Emkay Global Financial Services highlighted improvements in external pressures and system liquidity as key factors behind the MPC’s unanimous decision to pause, although one member dissented on the policy stance.

“The RBI noted the improvement in system liquidity since December 2025, driven by durable liquidity infusion of around Rs 6.3 trillion. However, the absence of further infusion announcements disappointed markets, with government bond yields rising 4–5 basis points post-policy,” Arora said.

She added that system liquidity is expected to improve steadily by the end of FY26 to around 1 per cent of Net Demand and Time Liabilities (NDTL), reducing the need for additional RBI support through open market operations (OMOs).

“Pressures from high government surplus, currency in circulation leakage, and forex intervention drain are likely to ease in the coming months,” Arora said.

On the macro outlook, Arora noted that the MPC maintained a largely stable view, with slight upward revisions in GDP growth forecasts for Q1 and Q2 of FY27 to 6.9 per cent and 7 per cent, respectively, supported by a better external environment. Inflation projections also saw a marginal increase, mainly due to base effects, while underlying momentum is expected to remain benign, excluding precious metals.

“There will be revisits on inflation and growth forecasts as the new series kicks in February,” she added, pointing out that FY27 could see a flattening of the yield curve, with risks tilted toward a bear flattening.

Overall, economists believe the RBI is entering a phase of extended policy pause, with liquidity management taking centre stage as inflation uncertainties rise and growth remains resilient.