The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is expected to announce its first monetary policy decision under the new Governor Sanjay Malhotra on Friday. Experts believe that there would be a cut of 25 basis points (bps) in the repo rate to boost economic growth without inflationary pressures.
Easing inflation may pave way for rate cut
According to a report by Bank of Baroda, inflationary pressures have softened, mainly due to a decline in prices of key vegetables like tomatoes, onions, and potatoes. The improved supply situation has led to lower volatility in the Consumer Price Index (CPI), giving the RBI room for a measured rate cut. The report stated, “Balancing macro and geopolitical factors, we believe there remains space for a 25 bps rate cut in the upcoming policy.”
Current repo rate stands at 6.50 per cent, no change in last 11 consecutive meetings
The RBI has kept its repo rate constant at 6.50 per cent in the last 11 successive policy meetings. In December, the MPC voted 5-1 to keep rates steady while keeping an eye on economic stability and watching the inflation gauge rise. The December policy did bring in a cut of 50 bps in the Cash Reserve Ratio to 4 per cent, targeting liquidity and credit growth.
Liquidity management: a Key Concern
While a 25 bps rate cut is widely expected, analysts believe additional liquidity measures may be needed to ensure smooth cash flow in the banking system. A report by Emkay Research highlights that investors and market participants are looking for steps beyond a conventional rate cut, as liquidity concerns persist.
GDP growth projections and further rate cuts
The RBI has estimated India’s real GDP growth for financial year 2024-25 to be 7.2 per cent and termed the Economic Survey projection of 6.4 per cent as the same as the National Statistical Office (NSO). Assuming such projected numbers, the RBI will be careful in its monetary policy decisions and future rate cuts would depend on trends in inflation and overall conditions of macroeconomics.
Markets await Governor Malhotra’s first policy stance
As the MPC prepares for its policy decision, all eyes will be on Governor Sanjay Malhotra’s stance on rate cuts, liquidity management, and any additional policy measures aimed at sustaining India’s economic momentum.
