Budget 2026 may decide the speed of RBI’s next rate cuts

India has more room for rate cuts than peers, say experts

Budget 2026 arrives at a delicate inflection point for macro policy. While the government faces growing calls to boost public expenditure and stimulate consumption demand, analysts say preserving fiscal credibility will be equally important, as lower interest rates remain another key pillar to support household demand and private-sector credit growth.

The backdrop is materially more supportive than a year ago. The RBI has already cut policy rates four times over the past year, lowering the repo rate by a cumulative 125 basis points from its peak of 6.5 percent to 5.25 percent. Globally, too, the monetary cycle has turned accommodative, with the US Federal Reserve delivering three rate cuts in 2025. In this environment, economists believe that if the Budget adheres to a credible fiscal-deficit path and outlines a manageable borrowing programme, it can reinforce the RBI’s ability to keep monetary policy growth-supportive.

The contrast with last year is stark. Around Budget 2025, policy rates were still firmly in restrictive territory, with the repo rate at 6.50 percent ahead of the February 2025 cut. Budget 2026, however, follows a much deeper easing cycle, giving policymakers greater flexibility—provided fiscal discipline is maintained.

According to Moneycontrol’s poll of 14 economists, bank treasury heads and fund managers, the RBI is expected to maintain a status quo on rates in its February policy review, while retaining a neutral stance with a dovish bias, keeping the door open for further cuts later in the year.

Fiscal credibility can accelerate RBI’s rate-cut cycle

Market expert Sunil Subramaniam said the upcoming Budget is likely to remain aligned with monetary policy objectives, with the government staying prudent on fiscal consolidation—both in terms of the fiscal deficit ratio and central government borrowing as a share of GDP—while deploying available fiscal space toward capex and consumption-led growth.

Echoing this view, Harshal Dasani of INVasset PMS said the Budget could indirectly help the RBI quicken the pace of rate cuts if it reinforces two key pillars: fiscal credibility and a clean, capex-led growth mix.

“A Budget that sticks to a believable fiscal-deficit glide path, avoids inflationary spillovers and keeps the borrowing programme manageable makes it easier for monetary policy to remain growth-supportive without risking bond-market stress. That matters because the RBI has already front-loaded easing, with the repo now at 5.25 percent after the December 2025 cut,” Dasani said.

India has more room for rate cuts than peers

Globally, the easing bias remains more cautious. The US Federal Reserve is expected to hold rates in the 3.50–3.75 percent range in the near term, while the UK continues to debate the timing of further cuts. Against this backdrop, Dasani said India has more room than most developed-market peers, but the Budget’s fiscal stance will determine whether the RBI can convert that “room” into “speed”.

Brokerages broadly align with this assessment. IIFL Capital said the RBI still has space for an additional 50 basis points of rate cuts in 2026, noting that the gap between the repo rate and core CPI inflation currently stands at 2.8 percentage points—well above the seven-year average of 1.1 percentage points. This elevated buffer, it said, provides scope for further monetary easing.

Goldman Sachs, too, flagged that if trade-related headwinds persist beyond the first quarter of FY27 and begin to meaningfully weigh on growth, the RBI could deploy its remaining policy space to provide additional support.