RBI’s February 2026 Policy: Stability Without Strategy? A Critical View

The status quo on the repo rate at 5.25%, though widely anticipated, marks yet another chapter in the RBI’s cautious approach to monetary policy. In a world where major central banks are already signalling directional clarity—either toward tightening (Bank of Japan) or easing (Fed pivot talk)—the RBI’s neutral stance appears safe rather than strategic. The central bank argues that macro-stability has improved, but the bigger question is whether stability alone is enough when India is navigating global fragmentation, capital-flow volatility, and structural domestic slowdowns.

The RBI’s decision to revise FY27 H1 growth upwards by 20 bps to 7% reflects confidence in domestic resilience. However, a critical reading suggests this optimism is not grounded in significant new drivers but in statistical momentum. Manufacturing output remains uneven; private consumption has been stagnant in rural regions for almost six quarters; and corporate investment, despite incentives, is still below pre-pandemic trendlines. The upward growth revision thus risks overstating a recovery that is more fragile than headline numbers indicate.

On the inflation front, the central bank raised its H1 FY27 inflation forecast to 4.1%, signalling persistent food-price pressures and unpredictable supply-side shocks. A decade-long trend shows India’s inflation is increasingly driven by climate volatility—heat stress, erratic monsoons, and global commodity swings—yet monetary policy still leans heavily on interest-rate signalling rather than structural price stabilization mechanisms. A small upward revision masks the deeper reality: inflation management in India is no longer a cyclical challenge but a structural one, and monetary tools alone cannot address it.

The assurance that liquidity will be maintained at “comfortable levels” provides temporary relief to markets, but here again the strategy appears reactive. Over the past year, liquidity has swung sharply—from deficit to surplus—creating noise in short-term money markets and adding unpredictability for MSMEs and NBFCs dependent on working-capital cycles. A forward-looking liquidity roadmap is missing, especially when digital payments, government borrowing patterns, and global rate differentials are reshaping liquidity dynamics faster than earlier policy cycles.

The expectation that the MPC will pause rate cuts unless downside risks materialise exposes the underlying caution of the committee. This approach, however, runs the risk of being pro-cyclical—maintaining rates too high for too long in an economy where credit growth is increasingly skewed toward retail loans, not productive investment. With global conditions shifting toward selective monetary easing, India’s continued wait-and-watch mode may delay the growth impulse needed for MSMEs, exports, real estate, and job creation.

In historical terms, India’s monetary policy has often favoured risk aversion—from post-1991 stabilization to post-2013 taper tantrum tightening. The February 2026 policy continues that lineage. But the future demands a more adaptive framework. The economy is entering a phase where cyclical risks are overshadowed by structural challenges—climate-linked inflation, supply-chain realignments, trade conditionality, and slowing household consumption. Monetary policy needs to move from cautious neutrality to strategic clarity.

Today’s policy delivers stability, but stability alone is not strategy. The RBI has signalled confidence, but the economy needs conviction. Without a sharper vision on liquidity, credit quality, inflation restructuring, and growth revival, the Monetary Policy risks becoming a defensive shield rather than a proactive instrument in shaping India’s long-term macro-trajectory.#MonetaryStability

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