An influential economic voice has urged the Reserve Bank of India (RBI) to hold its fire on interest rates, warning that a cut in the upcoming policy review would be premature and ineffective. Ranen Banerjee, Partner and Leader of Economic Advisory Services at PwC India, has made a strong case for maintaining the status quo, arguing that with growth holding strong and inflation under control, a rate reduction now would amount to "wasting a bullet."
Why a February Rate Cut is Unlikely
Banerjee, in an interview with PTI, stated that the RBI is unlikely to reduce the key policy rate during the next Monetary Policy Committee (MPC) meeting. This crucial meeting, led by RBI Governor Sanjay Malhotra, is scheduled for February 4-6, 2026, marking the final policy review of the current fiscal year. His stance is rooted in the current macroeconomic landscape. "If the growth numbers are holding up and base year revision is also on the anvil, which is expected to provide better estimates, then there is no need for a rate cut," he explained.
He emphasized that the economy is in a sweet spot where aggressive monetary stimulus is not required. "Firing a bullet when it is not needed as we are having good growth and contained inflation. So, there is no need for a rate action at this point of time," Banerjee added. This perspective suggests the MPC may continue its "long pause" on the rate cycle.
Private Capex: Driven by Demand, Not Interest Rates
A key pillar of Banerjee's argument challenges the common notion that high-interest rates are stifling private capital expenditure (capex). He asserts that private investment is not primarily sensitive to interest rate movements. Instead, the real bottleneck is demand uncertainty and low capacity utilization.
"I do not think that the private capex is held up because of the interest rate. It is because there is an uncertainty of demand or the confidence in demand or sustainability of demand is not there and the capacity utilisation is still in the range of 70-75 per cent," Banerjee noted. He clearly stated that a significant pick-up in private investment will only materialize when capacity utilization inches close to 85 per cent, creating an urgent need for additional capacity.
Context of Recent RBI Actions and Mandate
This call for a pause comes after a period of monetary easing. In its previous meeting last month, the six-member MPC unanimously cut the repo rate by 25 basis points to 5.25% while retaining a neutral stance. This was the fourth rate reduction since February 2025, following pauses in August and October. Over the calendar year 2025, the RBI cumulatively reduced the repo rate by 125 basis points from a high of 6.5%.
The central bank's primary mandate remains anchoring inflation. The government has tasked the RBI with ensuring that the Consumer Price Index (CPI) based retail inflation remains at 4% with a tolerance band of +/- 2%. With inflation currently benign, the focus, as per Banerjee's analysis, can remain on sustaining growth without further stimulus.
In summary, expert opinion is coalescing around a view that the RBI's MPC will prioritize preserving its policy ammunition. With strong growth, manageable inflation, and private investment awaiting a demand-led trigger, a rate cut in February 2026 seems increasingly improbable.
