RepoRate – India’s central bank is widely anticipated to keep its key lending rate unchanged in its upcoming policy announcement, reflecting caution as global financial uncertainties and domestic market fluctuations continue to influence economic conditions. A recent assessment by the State Bank of India suggests that while the Reserve Bank of India has previously adopted easing measures, current financial signals point toward maintaining the existing repo rate.
Recent movements in government bond yields have played a significant role in shaping expectations around the policy stance. Despite earlier reductions in policy rates, bond yields have shown a steady upward trend, indicating continued pressure within the debt market. Such developments often complicate monetary transmission, limiting the impact of earlier policy adjustments.
The report also notes that liquidity support measures, including Open Market Operations, may not deliver uniform outcomes if the selection of securities differs. Even if the central bank maintains the same liquidity infusion levels, variations in eligible instruments could restrict the effectiveness of such measures in easing financial conditions across sectors.
One of the most notable developments since the previous policy meeting has been the finalisation of trade agreements between India and major global partners, including the European Union and the United States. These agreements have significantly reduced tariffs on Indian goods, bringing them down from nearly 50 percent to about 18 percent.
This tariff reduction is expected to enhance India’s position in global markets by making exports more competitive. Analysts believe that these agreements could improve trade volumes and support economic growth over the medium term, particularly for industries that depend heavily on international demand.
Despite improvements in trade prospects, global economic stability remains uncertain. According to the analysis, rising geopolitical and economic tensions worldwide continue to pose potential risks. The Geo-Economics Stress Index indicates that such uncertainties typically translate into economic disruptions after a delay of three to four months, suggesting possible challenges in the near future.
This outlook encourages policymakers to adopt a cautious approach while balancing growth and inflation objectives. External vulnerabilities often influence capital flows, commodity prices, and investor sentiment, all of which can affect domestic financial stability.
Recent recovery in metal prices, following a sharp decline earlier, has added another layer of uncertainty to the inflation outlook. Fluctuations in commodity prices directly impact production costs for various industries and can influence consumer inflation trends. Policymakers are closely monitoring these developments while assessing future price stability.
The report also highlights potential changes in the United States monetary policy environment. Factors such as weakening labour market momentum, subdued growth in real disposable income, and easing inflationary pressures may encourage the US Federal Reserve to consider rate cuts in the coming months. Such moves often influence global investment patterns, capital movements, and exchange rate dynamics.
The Indian currency has experienced noticeable fluctuations in recent months, trading within a broad range against the US dollar. Since early April 2025, the rupee has recorded a decline of nearly 5.8 percent following sweeping tariff announcements by the United States. However, the currency witnessed partial recovery after the recent trade agreement between India and the US, which eased tariff burdens and supported investor confidence.
Changes in Consumer Price Index weighting structures suggest a modest rise in headline inflation levels. According to estimates, the revised index may increase overall inflation by approximately 20 to 30 basis points. However, during periods of elevated food inflation, the updated index could reflect slightly lower inflation readings, creating a mixed outlook for price stability.
Considering these multiple economic signals, financial experts anticipate that the central bank will adopt a wait-and-watch approach by keeping policy rates steady. The Monetary Policy Committee meeting, scheduled over three days from February 4 to February 6, will conclude with the official announcement on Friday. Market participants are closely monitoring the outcome, which will offer crucial guidance on the country’s economic direction in the coming months.
