RBI's likely to hold interest rates with inflation set to rise

Economic Outlook - The Reserve Bank of India (RBI) is expected to maintain its repo rate in the upcoming February policy meeting, awaiting new parameters that will influence inflation and growth metrics in the revised base-year series [1][5] - The December consumer inflation rate was recorded at 1.33%, with Q3 inflation averaging 0.8%, which is 20 basis points higher than the RBI's forecast of 0.6% for Q3 [1][5] - Economists anticipate a similar upward adjustment in the RBI's Q4 inflation forecast, currently set at 2.9% [1][5] Monetary Policy and Liquidity - The RBI has cumulatively reduced policy rates by 125 basis points since February 2025, bringing the rate down to 5.25% [1][5] - Economists do not foresee further rate cuts in the near term, predicting inflation could exceed 4% over the next four quarters [1][5] - There is an expectation for the RBI to inject additional liquidity through open market operations (OMO) to maintain systemic liquidity in surplus [1][5] System Liquidity - System liquidity shifted to a deficit in the latter half of December but has averaged a tight surplus of ₹36,869 crore in January [5] - Soumya Kanti Ghosh, chief economic advisor at State Bank of India, forecasts approximately ₹2 lakh crore of OMO for the remainder of FY26, with a similar trend expected in the following fiscal year [5] - Radhika Rao, senior economist at DBS Bank, indicated that additional tranches of OMOs and FX swaps are anticipated to address liquidity drains caused by foreign exchange interventions [5]