The Monetary Policy Committe (MPC) of Reserve Bank of India (RBI) is set to conclude its two-day meeting on Friday (February 7).
Economists and market-watchers alike expect Governor Sanjay Malhotra, the successor of Shaktikanta Das, to announce a rate cut of 25 basis points.
“After keeping a hawkeye on price stability till now, the RBI is now likely to prioritise and address growth concerns over the persistent inflationary pressures in the economy,” a recent report from JM Financial stated.
The brokerage house expects “a 25bps rate cut on 7th Feb, which may be followed by a pause; overall, we expect 50-75bps rate cuts in 2025.”
The recent liquidity measures taken by RBI have improved the deficit position, ensuring suitable conditions for policy easing and effective rate transmission.
Still, if the central bank announces a rate cut, it’s set to be a big deal.
This is primarily because of the major gap since the last RBI interest rate cut announcement. It has been nearly five years since the Reserve Bank previously slashed the repo rate.
That happened in May 2020 when the benchmark lending rate was cut by 40 basis points to 4 per cent to help the economy tide over the crisis following the outbreak of the Covid pandemic and subsequent lockdown.
Another reason a cut would be noteworthy is that it would follow the record tax cuts of $12 billion in Prime Minister Narendra Modi’s annual budget presented last week. It’d be a clear signal for push to greater consumption and liquidity.
This decision would also provide insights into the global situation, and the RBI’s view of its seriousness. After all, the economy slowed more than expected due to global pressures (alongside domestic ones) and US President Donald Trump has sent shockwaves with his new tariff threats.
The decision would mark the first by RBI Governor Malhotra. Bloomberg had previously reported that insiders from the RBI indicated Malhotra prefers a more hands-off approach regarding the rupee compared to his predecessor. He has also demonstrated a willingness to allow the currency to weaken in line with global peers.
The commentary alongside the decision would provide insights on whether his views regarding interest rates are on similar grounds.
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