New Delhi, Feb 6 (.) The Reserve Bank of India’s Monetary Policy Committee (MPC) unanimously decided to keep the policy repo rate unchanged at 5.25 per cent and continue with a neutral stance, even as one external member favoured a shift towards an accommodative position, according to SBI Research’s latest Ecowrap report released here on Friday.
The decision was taken against the backdrop of sustained buoyancy in the services sector, GST rationalisation, healthy rabi prospects, benign inflation conditions, high capacity utilisation, supportive financial conditions, strong corporate and banking sector balance sheets and fresh investment activity.
Reflecting these factors, the RBI revised its real GDP growth projections upwards to 6.9 per cent for Q1 FY27 and 7 per cent for Q2 FY27.
On inflation, the RBI noted that food supply prospects remain bright following healthy kharif output and favourable sowing trends, even as risks persist from volatility in energy prices. CPI inflation for FY26 has been projected at 2.1 per cent, with Q4 FY26 inflation estimated at 3.2 per cent.
The slight upward revision in the FY26 inflation projection has been attributed to rising prices of precious metals.
The report also flagged that the release of a new CPI series could alter future inflation projections and the trajectory of monetary policy.
Despite the rate pause, bond markets reacted sharply, with yields climbing by nearly 10 basis points, marking the steepest increase since the June policy.
SBI Ecowrap said markets had been anticipating regulatory relief such as dilution or postponement of Liquidity Coverage Ratio (LCR) norms.
Additionally, the large supply of gross government borrowings slated for FY27 has acted as a constraint on yield softening.
The report highlighted increasing stress on bank liquidity metrics, noting that LCR levels of many banks have slipped below 120 amid a widening gap between deposit mobilisation and credit growth.
This has been exacerbated by a growing preference among select banks for wholesale deposits, which carry higher run-off risks compared to retail deposits.
Against this backdrop, SBI Research said that correcting market microstructure is now more important than liquidity management, even as the RBI has reiterated that it will remain proactive in ensuring sufficient liquidity for productive economic activity and policy transmission.
SBI noted that net central government borrowings have remained largely stable since the pandemic, rising only marginally to Rs 11.7 lakh crore in FY27 from Rs 11.4 lakh crore in FY21, suggesting that borrowing pressures may be overstated.
The report also pointed to possible reforms in the state development loan market, as indicated by the 16th Finance Commission, and noted that bond buybacks, once announced, could help reduce gross borrowing.
The rupee strengthened significantly following the policy announcement, an unexpected development. SBI Research suggested that dollar recoupment by the RBI may be more appropriate when the rupee trades below the 90 level, rather than immediately after appreciation.
On the developmental and regulatory front, the RBI announced a bouquet of measures aimed at improving consumer protection, market conduct and financial inclusion.
These include comprehensive instructions for regulated entities on advertising, marketing and sales of financial products to address mis-selling, and a review and harmonisation of guidelines on loan recovery and engagement of recovery agents across banks and NBFCs to ensure uniform practices and better oversight.
To support real estate financing, the RBI has permitted bank lending to Real Estate Investment Trusts in line with existing norms for infrastructure investment trusts.
Banks will be allowed to lend to operational projects through REITs or take equity exposure, a move SBI Ecowrap said supports Budget announcements aimed at monetising CPSE assets and improving fund flow to the sector.
To deepen bond markets, the RBI announced the introduction of credit index derivatives and total return swaps on corporate bonds, which are expected to provide an additional route for capital inflows and help corporates manage risk more effectively.
Investments under the voluntary retention route will now be reckoned under the general FPI investment limit, a move expected to enhance liquidity and attract long-term foreign investors into government securities and corporate debt.
On financial inclusion, the RBI proposed a comprehensive revamp of the Lead Bank Scheme, including the launch of a unified reporting portal and streamlined operational processes.
In a significant boost to micro, small and medium enterprises, the RBI announced an increase in the collateral-free loan limit from Rs10-20 lakh for loans sanctioned or renewed on or after April 1, 2026, aligning with broader Budget measures aimed at strengthening MSME credit access.
SBI concluded that FY26 has ended on a cautious note, with the RBI’s rate pause shaped by multiple factors beyond macroeconomic conditions, including evolving global risks, changes in the US Federal Reserve leadership and geopolitical developments affecting price formation.
. SAS .