The Union Budget has introduced initiatives to bolster consumption while upholding fiscal discipline; it is now up to the central bank to invigorate the lackluster economic growth.
The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) is anticipated to lower the policy repo rate for the first time in nearly five years, as per all respondents except Yes Bank in a Business Standard poll of 10 participants. The participants expect a reduction of 25 basis points (bp) in the rate.
A poll of economists and treasury heads across banks and market experts, hint that a brand new Monetary Policy Committee that will meet from February 4 – 7, led by Sanjay Malhotra, the new governor, Reserve Bank of India may hand out a rate cut in the upcoming Monetary Policy of Reserve Bank of India. Being the first MPC under Malhotra, the expectation is that the repo rate cut or the benchmark lending rate fixed by the RBI could be reduced by 25 basis points (bps) from 6.5 percent to 6.25 percent in the upcoming MPC. The MPC will announce its decision on repo rate on February 7.
It seems the rate might go down because of slow growth, a lower inflation outlook, and the careful spending shown in the Budget. Gross domestic product (GDP) growth, which shows how the economy is doing, slowed to a seven-quarter low of 5.4 percent in the July-September quarter of 2024-25.
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The latest moves by the RBI to manage money flow have also made this more likely, according to the people who took part in the poll.
“We expect a 25-bp cut in February, as upside risks to inflation are easing. Consumer Price Index (CPI) inflation for 2025-26 is expected to average 4 per cent. The January CPI inflation print is likely to be below 4.5 per cent,” said Gaura Sen Gupta, chief economist at IDFC First Bank.
Sen Gupta also added, “Meanwhile, growth is showing signs of moderation, with weakness in urban consumption and capital expenditure. The Union Budget is positive, as it has stayed on the fiscal consolidation path,”.
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Following an assessment of the existing liquidity and financial situation, the RBI declared several initiatives to provide lasting liquidity to the banking sector. These consist of open market purchase auctions of Government of India securities amounting to Rs 60,000 crore in three installments of Rs 20,000 crore each on January 30, February 13, and February 20. Furthermore, a variable rate repo auction lasting 56 days for Rs 50,000 crore will take place on February 7, while a USD/INR buy/sell swap auction of $5 billion with a six-month tenor is set for January 31.
As per the most recent RBI data, the banking system’s net liquidity encountered a deficit of Rs 2.2 trillion on Thursday.
