The Reserve Bank of India’s (RBI) upcoming monetary policy committee meeting in February could focus on supporting economic growth, according to brokerage firm Jefferies.
Jefferies said that the central bank’s policies might take a growth-supportive turn, particularly as the government is expected to adopt a tight fiscal stance in its budget on February 1.
A recent move by the RBI to provide liquidity was cited as a positive indicator. The central bank announced that it would inject Rs 1.5 lakh crore liquidity into the banking system until the end of February.
Jefferies observed that if the committee, led by RBI Governor Sanjay Malhotra, adopts a more accommodative stance on liquidity or interest rates, the rupee could see further depreciation.
The brokerage firm expressed a cautious outlook on the budget due to an anticipated slowdown in government capital expenditure. However, it noted that stock market corrections have already accounted for these concerns. With revenue collections at a high base and the government’s commitment to fiscal consolidation, significant spending growth is unlikely.
Regarding the slowdown in economic growth, Jefferies suggested that most contributing factors are temporary. The March quarter is expected to see improvement as underspending in the first eight months of fiscal 2025 could reverse between November 2024 and March 2025. A potential improvement in liquidity and regulatory measures could contribute to an uptick in economic activity in the coming months.
Jefferies also pointed out rising pressure to increase expenditure on social welfare schemes and speculations about a potential hike in corporate taxes. If neither materializes, the market may react positively.
In its previous monetary policy review on December 6, the RBI reduced the cash reserve ratio (CRR) for banks by 0.5 per cent to 4 per cent, making more funds available for lending while keeping the key policy repo rate unchanged at 6.5 per cent. This CRR cut infused Rs 1.16 lakh crore into the banking system to bring down market interest rates and support economic activity.
On Monday, the RBI announced an additional Rs 1.10 lakh crore liquidity injection through open market purchase auctions of government securities and a variable rate repo auction. A $5 billion dollar-rupee swap auction is also planned to enhance liquidity. These measures aim to provide banks with more funds for lending and reduce interest rates to support economic growth amid geopolitical uncertainties.
-IANS
