Daijiworld Media Network - New Delhi

New Delhi, Dec 22: The Reserve Bank of India (RBI) could reduce the policy repo rate by 25 basis points to 5 per cent in its upcoming February monetary policy review, according to a recent report by the Union Bank of India (UBI). The central bank’s dovish stance, along with subdued underlying inflation pressures, has fueled expectations of a possible final rate cut.

The UBI report noted that, after accounting for the approximate 50 bps inflation contribution from gold, underlying price pressures appear moderate. “We see scope for a final 25 bps rate cut in February or April 2026. Given the dovish policy guidance, we cannot rule out the possibility of a cut in the Feb’26 meeting to 5 per cent, even though the exact timing is difficult to call,” the report stated.

However, the timing of the reduction remains uncertain due to upcoming revisions in the Consumer Price Index (CPI) and Gross Domestic Product (GDP) base years, scheduled for February 2026. These revisions may prompt the Monetary Policy Committee (MPC) to adopt a wait and watch approach before finalising any further monetary easing.

The RBI’s MPC had reduced the repo rate by 25 bps in December 2025, bringing it down to 5.25 per cent. The next policy meeting is slated for February 4–6, 2026. The central bank also revised the FY26 growth forecast to 7.3 per cent, citing supportive domestic factors such as income tax rationalisation, easing monetary policy, and a GST-led fiscal push.

A recent report by Yes Bank highlighted that a new CPI with lower food weightage could limit the room for additional rate cuts, unless economic growth weakens significantly. The RBI is expected to continue its approach of maintaining comfortable liquidity while keeping the operative rate aligned with the repo rate.