The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting kicked off today, February 5, and it will be the first RBI policy under the new Governor Sanjay Malhotra. This is also the first RBI MPC meeting after the Union Budget 2025-2026 was presented on February 1
Economists widely expect the RBI to cut the benchmark repo rate by 25 basis points (bps) to 6.25%. In the last MPC meeting in December 2025, the former RBI Governor Shaktikanta Das announced the MPC’s decision to keep the repo rates unchanged at 6.5% for the eleventh straight meeting, and maintain the monetary policy stance ‘Neutral’.
While RBI is expected to cut repo rate on January 7, the move, however, seems to be largely priced into the markets, leaving investors to focus on the RBI’s future guidance, particularly regarding liquidity management and currency stability, analysts said.
Here’s what should be investors' strategy in the stock market, bonds and currency market ahead of the RBI policy decision.
The Indian stock market investors’ attention is now focused on the RBI MPC meeting decision to be announced on Friday.
“Expectations are high for a potential rate cut following FM Nirmala Sitharaman’s emphasis on boosting consumption in the Union Budget 2025-26. Technically, Nifty 50 needs to break above 24,020 (its 200 DMA) to confirm strength,” said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.
Meanwhile, the Budget’s focus on boosting urban consumption through substantial income tax relief has been a positive for the equity markets.
Abhishek Pandya, Research Analyst at StoxBox, notes, "This relief is expected to stimulate urban consumption, which has been sluggish for several quarters. Consequently, we will closely observe Mr. Malhotra's comments on inflation projections, as well as any updates related to India’s GDP projection. An immediate onset of monetary easing during this meeting could be instrumental in supporting growth outcomes throughout FY26.”
UBS analysts highlight that while the budget provides a boost for urban consumption and rural housing, it is weak on capital expenditure. “The ₹1 trillion urban consumption boost is positive for consumer durables, two-wheelers, staples, and consumer finance sectors,” UBS stated. However, they caution that the muted capex increase could limit broader market gains.
On the technical side, Nifty 50 can find support at 23,600 followed by 23,500 and 23,400. On the higher side, 23,800 can be an immediate resistance, followed by 23,900 and 24,000
Suresh Darak, Founder of Bondbazaar, expects the RBI to reduce the benchmark rate by 25 bps, given the government's commitment to fiscal prudence.
“However, this move is largely priced in, so we don't anticipate significant market movement. The real focus will be on the RBI's future guidance, particularly their strategy for managing liquidity amidst currency depreciation. The RBI’s outlook on liquidity and currency will be crucial in shaping market sentiment,” Darak stated.
Mayank Mundhra, FRM- VP Risk & Head Research at Abans Group, highlights that the Indian government bond yields have been on a declining trajectory over the past year.
“With recent lows around 6.63% on the 10-year bond, which is near the repo rate of 6.5%, markets seem to have already priced in the rate cuts. The RBI’s recent liquidity infusion efforts through VRR, OMO in 10-year, and buy/sell swaps have capped the upside in yields,” Mundhra added.
He cautions that any delay in the rate cut due to global volatility or inflationary concerns could trigger negative surprises.
Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund anticipates that the RBI might begin the rate-cutting cycle from April 2025. They recommend investors allocate to Short-Term and Corporate Bond Funds with a portfolio duration of up to 4 years.
“Investors should have an investment horizon of 12-18 months while investing. Money market yields of up to 1 year are looking attractive from a relative risk-reward scenario and investors can look to allocate in that segment also,” Pal said.
The Indian rupee has been facing depreciation pressures, and has hit a record low of 87.34 against the US dollar on February 5.
“The focus of RBI will continue to be on addressing the liquidity deficit of the banking system along with INR, though it seems that the new regime at RBI is more willing to let INR depreciate in light of the global scenario. Thus, we believe that RBI will start the rate cutting cycle in India from April 2025,” Puneet Pal said.
Dr. Bharath Supra, Associate Professor & MBA Program Chair, SBM Navi Mumbai, SVKM’s NMIMS, emphasizes that a repo rate cut could further impact the rupee, although the RBI’s interventions through open market operations might mitigate this effect.
“RBI MPC faces a unique situation of stable core inflation but persistent high food and retail inflation, decelerating growth, a battered rupee, global uncertainties, and regionalism. A rate cut would most definitely impact the already battered rupee; the impact would mostly be temporary, which could be mitigated by the RBI’s interventions through open market operations,” said Dr. Supra noted.
Investors should remain cautious of currency volatility, with a focus on sectors that benefit from a weaker rupee, such as export-oriented industries.
As the RBI MPC meeting unfolds, analysts said that the investors should adopt a balanced approach. In the bond market, short to medium-term strategies appear favorable, while equity investors might focus on consumption-driven sectors. Currency market participants should stay vigilant about RBI's interventions and global factors influencing the rupee.
The RBI’s future guidance on liquidity and currency management will be key in shaping market sentiment across all asset classes.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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