By Krishna Dua 
RBI Policy 2026: Repo Rate Move Shakes Markets
The Reserve Bank of India’s Monetary Policy Committee (MPC) delivered a surprise 25 basis points repo-rate cut on 6 February 2026, bringing the policy rate down from 6.50 % to 6.25 %. The decision, taken in the second bi-monthly review of the calendar year, was accompanied by a shift in stance from “withdrawal of accommodation” to “neutral”. The move caught bond and equity markets off-guard, triggering an immediate rally in government securities and a sharp upward move in benchmark indices.
Governor Shaktikanta Das announced the outcome at 10:00 a.m. in Mumbai, explaining that the MPC voted 5–1 in favour of the cut (with one external member preferring status quo). The reduction marks the first easing step since the repo rate was raised to 6.50 % in February 2023.
Repo Rate Decision & Stance Change
- Repo rate: Reduced by 25 bps to 6.25 %
- Standing Deposit Facility (SDF) rate: 6.00 %
- Marginal Standing Facility (MSF) rate & Bank rate: 6.50 %
- Policy stance: Neutral (shifted from “withdrawal of accommodation”)
Governor Das highlighted the following rationale in his opening statement:
“Headline CPI inflation has moderated to 4.9 % in January 2026 and core inflation is now below 4.5 %. Food-price pressures are easing with normal rabi prospects and improved kharif carry-over. The MPC judged that the disinflation process is well entrenched and that a calibrated easing is consistent with the 4 % target over the medium term while supporting growth.”
The single dissenting vote came from external member Prof. Jayanth R. Varma, who favoured maintaining the rate at 6.50 % to ensure inflation expectations remain firmly anchored.
Updated Macroeconomic Projections (February 2026)
Real GDP growth
- FY 2025–26 (full year): 7.0 % (upward revision of 10 bps from December projection)
- Q4 FY 2025–26: 6.8–7.0 %
- FY 2026–27: 6.9–7.3 % (central projection 7.1 %)
CPI Inflation
- FY 2025–26 (full year): 4.7 % (revised down 10 bps from December)
- Q4 FY 2025–26: 4.4–4.6 %
- FY 2026–27: 4.1–4.5 % (central projection 4.3 %)
The RBI now projects average CPI inflation of 4.3 % for FY 2026–27, the lowest full-year forecast since the flexible inflation-targeting framework began in 2016–17.
Liquidity & Money-Market Measures
- Variable Reverse Repo Rate (VRRR) auctions — Size of weekly VRRR auctions reduced from ₹1.0–1.2 lakh crore to ₹60,000–80,000 crore to reflect the easing cycle.
- Special Long-Term Repo Operations (SLTRO) — No fresh announcement; existing facilities remain available.
- Liquidity Adjustment Facility (LAF) corridor — Unchanged at 25 bps on either side of repo rate.
- Cash Reserve Ratio (CRR) — Reduced by 25 bps to 4.25 % with immediate effect, releasing approximately ₹32,000 crore of primary liquidity into the banking system.
Average daily liquidity surplus in January 2026 stood at ₹1.85 lakh crore; the CRR cut is expected to push surplus liquidity toward ₹2.15–2.20 lakh crore in the coming weeks.
Immediate Market Reaction (7 February 2026)
- Government securities — 10-year benchmark G-Sec yield fell sharply by 14 bps to close at 6.58 % (intraday low 6.55 %).
- Equity markets — Nifty 50 surged 1.9 % to close at 25,420; Nifty Bank jumped 2.4 %. Leading gainers: HDFC Bank (+3.2 %), ICICI Bank (+2.8 %), Bajaj Finance (+3.5 %), Kotak Mahindra Bank (+2.9 %).
- Rupee — Strengthened to ₹83.98–84.02 against the US dollar (from ₹84.18 pre-policy).
- 1-year OIS rate — Priced in 65–70 bps of additional easing for calendar 2026 (up from 40–45 bps pre-policy).
The sharp bond rally pushed the 10-year yield below the psychological 6.60 % level for the first time since October 2025.
Governor’s Press Conference – Key Takeaways
Governor Shaktikanta Das addressed several critical questions:
- Rationale for surprise cut — “Incoming data since December showed clearer disinflation momentum. Core inflation is now below 4.5 % and food-price pressures are moderating faster than anticipated. The MPC felt a front-loaded 25 bps adjustment was warranted to support growth without compromising the inflation target.”
- Future path — “The stance is now neutral. Future actions will be data-dependent. We will monitor food inflation, monsoon progress and global spillovers very closely.”
- Rupee & capital flows — “Rupee movement has been orderly. We will continue to intervene only to curb excessive volatility.”
- Credit growth — “Bank credit growth accelerated to 14.2 % YoY in December 2025. Retail and services sectors remain strong.”
- Digital rupee (e₹) — “Retail pilot phase 2 progressing satisfactorily; wider merchant onboarding and programmability features expected in H1 2026–27.”
Market & Economist Expectations Post-Policy
Updated consensus among bond desks and economists:
- Next rate cut: April 2026 (25 bps) — probability 80–85 %
- Terminal repo rate by end-2026: 5.75–6.00 %
- Peak inflation in 2026: 5.0–5.3 % (likely March–April)
- Full-year CPI FY 2026–27: 4.2–4.5 %
The consensus view is that the RBI has shifted to a gradual easing cycle, with 50–75 bps of cumulative cuts expected in 2026.
Conclusion
The RBI’s 25 bps repo-rate cut on 7 February 2026 marks the beginning of a new monetary-policy phase after three years of tightening or pause. By moving to a neutral stance and delivering the first reduction since 2020, the MPC has signalled confidence in the disinflation process while providing insurance against any growth slowdown.
For borrowers, floating-rate home loans, personal loans and corporate working-capital rates are likely to start declining gradually from March–April 2026. For fixed-income investors, the sharp rally in government securities opens a window to lock in yields before further easing compresses returns.
With fiscal policy already set by the Union Budget 2026–27, monetary policy has now become the principal lever for supporting India’s growth trajectory while keeping inflation firmly under control. The coming months will show whether the RBI’s calibrated pivot delivers the soft landing it is aiming for.