The odds of a monetary policy rate hike are quite low given benign core inflation, according to ICICI Bank Global Markets. As a result, it said, it expects a prolonged pause going into 2026-27, with focus on injecting durable liquidity regularly to ensure monetary transmission remains in place.
The ICICI Bank Global Markets argued that any inflation upside shocks also seem unlikely, given the recent core inflation print in the new series. The recent increase in oil prices also works in favour of a rate pause.
The minutes of the monetary policy meeting that was held earlier this month showed that members expressed a more optimistic outlook on growth as reflected in various High Frequency Indicators and the recent trade deals with the US and the EU. Hence, growth has been revised upwards by 20 basis points for H1-2026-27.
The majority of the members maintained the view that the inflation outlook is benign despite the upside revision to CPI projections. The upside revision was due to higher precious metal prices.
Notably, the new CPI series showed an upside bias in food inflation, while core was below expectations.
A more positive outlook on growth implies that the odds of further rate cuts are low, but a low for longer regime is likely to play out, given that headline inflation is expected to remain around target.
“The focus of MPC is likely to be on transmission and use of different tools to ensure the same. Since the December rate cut, bond yields and wholesale deposit rates have moved the other way with recent inching up of oil prices not helping,” ICICI Bank Global Markets said in their report.
On February 6, the monetary policy committee of the RBI unanimously decided to keep the policy repo rate unchanged at 5.25 per cent, while continuing with a neutral policy stance.
Published on February 21, 2026
