The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is set to announce its first monetary policy under new Governor Sanjay Malhotra on Friday. Experts predict that the central bank may reduce the repo rate by 25 basis points (bps) to stimulate economic growth while keeping inflation under control.
According to a report by Bank of Baroda, inflationary pressures have eased, primarily due to a decline in the prices of essential vegetables such as tomatoes, onions, and potatoes. This improvement in the supply scenario has contributed to lower volatility in the Consumer Price Index (CPI), giving the RBI room to implement 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.”
Currently, the repo rate stands at 6.50 percent, and the RBI has kept it unchanged for the past eleven consecutive meetings. In the December policy meeting, the MPC voted 5-1 in favor of maintaining the rate, prioritizing stability while closely monitoring inflation trends. However, the December policy also included a 50 bps cut in the Cash Reserve Ratio (CRR), reducing it to 4 percent—an effort aimed at enhancing liquidity and supporting credit growth.
While a 25 bps rate cut is widely anticipated, analysts believe the RBI may need to take additional liquidity measures to ensure adequate cash flow within the banking system. A report by Emkay Research highlighted that investors and market participants are looking for policy actions beyond the conventional rate cut, as liquidity concerns continue to be an ongoing 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 projections by the National Statistical Office (NSO).
Given these economic projections, a cautious and measured approach to rate reduction is expected, with future cuts depending on evolving inflation trends and broader macroeconomic conditions.
As the MPC prepares for its latest decision, market participants will closely monitor Governor Sanjay Malhotra’s stance on rate cuts, liquidity management, and any further policy announcements aimed at sustaining India’s economic momentum.
-ANI
