DBS Bank’s Group Research shares insights on the upcoming Reserve Bank of India (RBI) monetary policy committee meeting set for February 6, 2026. The report indicates that the RBI will likely keep interest rates the same due to steady growth, even with ongoing trade tensions and higher inflation than before. The Indian Rupee has been losing value, reaching new lows. The RBI is expected to focus on managing liquidity and currency risks. Lowering interest rates further could result in money leaving the country, according to the report.

Monetary Policy Outlook

In December 2025, the RBI’s monetary policy committee lowered rates. However, it is expected to hold rates steady now to avoid further depreciation of the Indian Rupee. This decision aims to stabilize the economic environment amid trade challenges. As the RBI meeting approaches on February 6th, we anticipate that the central bank will keep interest rates unchanged. Although a rate cut occurred in December 2025, current conditions have changed. The primary focus now seems to be on managing risks rather than stimulating the economy further. Recent data indicates a cautious approach, with headline inflation rising to 5.2% in December 2025, moving away from last year’s lows. The economy is still strong, demonstrated by a 7.5% GDP growth in the third quarter of the 2025-26 fiscal year. These mixed signals make another rate cut unlikely in the near future.

Currency Stability and Market Implications

The weakness of the Indian Rupee plays a crucial role, as it has recently hit a new low beyond 85.20 against the US dollar. Another rate cut could lead to more capital flight, compounding the issue, especially since foreign portfolio investors withdrew over $4 billion from Indian debt markets in the last quarter of 2025. For now, the RBI is likely to prioritize stability in currency and liquidity. For derivative traders, this situation indicates increased market volatility around the policy announcement. We recommend buying short-term options on the USD/INR pair as a smart strategy to prepare for a potential sharp move. This allows for profit whether the Rupee strengthens on a hawkish decision or weakens under continued pressures. In equity markets, a similar approach using Nifty index options could be useful. Buying at-the-money straddles for the February expiration may benefit from a significant price swing if the RBI’s statements surprise the market. The main risk is an uneventful announcement that may lower implied volatility. Regarding interest rate derivatives, the Overnight Index Swap (OIS) market has largely incorporated the expectation of a rate pause. Traders should closely watch the yield curve after the meeting for any updates in forward guidance. A more hawkish stance than anticipated could present opportunities in short-term interest rate futures. Create your live VT Markets account and start trading now.

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