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A poll of global economists predicts that the upcoming Monetary Policy of Reserve Bank of India under Sanjay Malhotra as the new RBI governor may introduce a rate reduction due to the upcoming Monetary Policy Committee meeting from February 4 - 7. Under the leadership of Sanjay Malhotra during his first MPC meeting the expectation includes a prospective 25 basis point (bps) reduction of the repo rate since it currently stands at 6.5 percent and is predicted to settle at 6.25 percent. The Monetary Policy Committee will disclose its decision regarding repo rate on February 7th.
The prediction of expert analysts points toward impending rate reduction even though inflation exceeds its medium-term objective of 4 percent. The combination between slow economic growth and government fiscal estimate together with multiple liquidity boost strategies supports a strong case for interest rate reduction.
Last week the RBI put forward steps which added Rs 1.5 lakh crore to banking system liquidity. The recent reduction in cash reserve ratio enabled the introduction of Rs 1.16 lakh crore in liquidity during December before the new liquidity boost added Rs 1.5 lakh crore.
The Reserve Bank of India plans to host a dollar-rupee buy/sell swap auction which will allocate $5 billion through a six-month duration.
A rate cut now will introduce reasonable growth to India's consumer market. A rate cut at this time could successfully provide emotional support to consumer spending based on the present income tax relief to people earning less than Rs 12 lakhs per year.
Premature analysis of data released on January 7 indicates India's FY25 growth rate will reach 6.4 percent marking its smallest performance since FY21. Investors and manufacturers expect to experience decreased activities over the upcoming year. Prior to this, the RBI in the December monetary policy cut its GDP growth forecast to 6.6 percent for the current fiscal year, from 7.2 percent earlier.
The February rate cut in India remains expected because inflation signs are now showing visible improvement in moderation. The dramatic veggies-led price drop in food will drive CPI inflation to reach 4.5% during January according to Gaura Sengupta Chief Economist of IDFC First Bank.
The experts from Moneycontrol and the economists predict that interest rates in India will undergo a reduction of 50 - 75 basis points through 2025. If the Reserve Bank of India cuts interest rates at their February meeting then another reduction could come within the range of 25 to 50 bps. The economist from a leading foreign bank declared it premature to discuss potential developments for April and July right now. The prevailing inflation pressures in the economy have halted US rate action aggressiveness as expected. According to him, India must monitor incoming data with great care for its monetary stability.
The US Fed made a decision to halt its interest rate reduction program last week even though the Trump administration applied pressure despite lower rates by 25 bps in December 2024.
Since the beginning of 2023 the RBI has maintained its policy repo rate constant throughout its December MPC meeting period. The repo rate has risen progressively by 250 bps throughout the period from May 2022 until February 2023. The demand for keeping the repo rate at 6.5 percent started in April 2023 and continues today because it serves as a tool to control inflation rates and reach the 4 percent medium-term objective.
The recent slowdown in inflation combined with dollar stabilizing and decreasing demand and continued budgetary reforms puts the monetary policy under pressure to exercise growth-oriented measures according to DBS Group Research.
The rate setting team of the MPC maintains its 'Neutral' stance after switching from 'Withdrawal of accommodation' in October last year despite keeping the repo rate static for nearly two years.
