RBI's Monetary Policy: Will Governor Malhotra Cut Rates?
monetary policy stance is likely to remain neutral, though some expect a slightly dovish tone. The announcement will be broadcast on the RBI's YouTube channel at 10:00 AM on February 7, 2025.
All eyes are on the Reserve Bank of India (RBI) as Governor Sanjay Malhotra is set to announce the outcomes of the Monetary Policy Committee (MPC) meeting on February 7, 2025. The meeting, which commenced on February 5, is being keenly watched for a potential repo rate cut of 25 basis points. This would be the first rate reduction in nearly five years.
Expectations and Economic Context
Economists and market participants are anticipating a possible rate cut to stimulate GDP growth, which slowed to 5.4% in the second quarter of FY 2024-25. The Union Budget 2025 provided a consumption push, and now the central bank is expected to provide further stimulus. A CNBC-TV18 poll revealed that 70% of market participants and economists expect a 25-basis point rate cut to support economic growth, while 30% believe the RBI may hold rates steady to manage risks related to rupee depreciation.
Factors Influencing the Decision
Several factors could influence the MPC's decision. Inflation is largely under control. However, concerns over a weakening rupee and global uncertainties could delay rate cuts. Despite these concerns, the broader view is that the RBI will allow a gradual rupee adjustment while maintaining stability. The last repo rate reduction occurred in May 2020, when the RBI lowered the rate to 4% to address economic challenges during the COVID-19 pandemic. The RBI then hiked rates seven times to reach 6.50% before pausing in February 2023.
What to Watch For
The new RBI governor's commentary will be closely scrutinized for cues on the central bank's stance, GDP growth outlook, and CPI inflation forecasts. Markets will also be watching for any updates on the new liquidity coverage ratio (LCR) norms, which take effect from April 1, 2025. While a cash reserve ratio (CRR) cut is unlikely, 60% of respondents expect additional liquidity measures. The overall monetary policy stance is likely to remain neutral, though some expect a slightly dovish tone. The announcement will be broadcast on the RBI's YouTube channel at 10:00 AM on February 7, 2025.This announcement is brought to you by Hexahome and Hexadecimal Software Pvt. Ltd.
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