New Delhi [India]: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is set to announce its first monetary policy under new Governor Sanjay Malhotra on Friday.
Experts are anticipating a 25 basis points (bps) cut in the repo rate as the RBI looks to support economic growth while managing inflation effectively.
A Bank of Baroda report highlights that inflationary pressures have eased, particularly due to a decline in the prices of essential vegetables like tomatoes, onions, and potatoes. This improved supply scenario has helped stabilize the Consumer Price Index (CPI), providing the RBI with the flexibility to introduce a measured rate cut.
The report states,
“Balancing and counterbalancing all macro and geopolitical factors, we believe there remains space for a 25 bps rate cut by the RBI in the upcoming policy.”
The current repo rate stands at 6.50 percent, and it has been unchanged for the last eleven consecutive meetings.
During the December policy meeting, the MPC voted 5-1 in favor of maintaining the rate, prioritizing stability while monitoring inflation trends. However, there was a 50 bps reduction in the Cash Reserve Ratio (CRR), which was brought down to 4 percent, to improve liquidity and encourage credit growth.
While a 25 bps rate cut is widely expected, analysts also foresee the RBI taking additional liquidity measures to ensure sufficient cash flow within the banking system.
A report by Emkay Research indicates that investors and market participants are seeking further policy measures beyond a conventional rate cut, as liquidity concerns continue to be a challenge.
For the financial year 2024-25, the RBI has projected India’s real GDP growth at 7.2 percent, while the Economic Survey estimates a growth of 6.4 percent, aligning with the National Statistical Office (NSO) projection.
Given these projections, experts expect the RBI to take a measured and cautious approach toward rate reductions, with future cuts depending on evolving inflation trends and broader macroeconomic conditions.
As the MPC prepares for its decision, market participants will closely monitor Governor Sanjay Malhotra’s stance on rate cuts and liquidity management, along with any further policy announcements aimed at sustaining India’s economic momentum.