No interest rate cut in RBI’s Feb policy review, or anytime in FY26: Axis Bank’s Mishra

Axis Bank’s chief economist Neelkanth Mishra
| Photo Credit: Jyothy R 2576@Chennai

The elevated inflation does not offer the Reserve Bank any space for an interest rate cut in the next policy review in February and the whole of FY26 as well, a senior economist said on Wednesday.

Axis Bank’s chief economist Neelkanth Mishra, who is also a part-time member of the Economic Advisory Council to the Prime Minister, stressed that a change of guard at RBI will not result in any veering off and added that the institutional ability is very strong.

A rate cut will not be possible for the “next 13-14 months” due to the inflation outlook, he said, adding that the average inflation for FY26 will be 4.5%.

Except the third quarter of FY26, where the headline number will cool down to the 4% target of RBI on a higher base, the headline number will be between 4.5-5% all through the end of FY26 leaving little space for a rate cut, he told reporters here.

Even if the RBI cuts rates with an eye on propping-up growth, a 0.50% decline in its key rates will not be a “decisive” move to help the growth process, he said.

“When you move to cut rates, it should be a decisive one. 0.50% is neither here neither there,” he said.

Unlike some economists, who believe the GDP growth at seven-quarter low of 5.4% has led to a dip in the trend growth, Mishra said he still considers 7% to be the trend growth and added that the country will achieve it in FY26 after a 6.6 per cent growth in FY25.

Explaining the reasons for slowdown in growth, Mishra said unitended tightening by both the fiscal and monetary authorities has impacted it. He said the Centre slowed down capex, while some regulatory actions of RBI also hurt.

Growth has touched a trough in Q2, he said, adding that it will be investment activity, and not consumption, which will lead the overall economic growth.

He said there is sufficient appetite within the corporate sector to invest for capacity expansion, given the high utilisation levels across many sectors.

The overall cash transfers done by states to women will rise to  ₹2.5 lakh crore in FY26 from the  ₹2 lakh crore projected in FY25 on an annualized basis, he said, pointing that other states like Bihar, which is also going to polls soon, will adopt such a move.

On the currency management front, Mishra pitched limited interventions from the RBI, pointing that the rupee has been very stable among peers, and added that he expects the currency to depreciate further to be at  ₹86.5 a dollar by end of FY26.