New Delhi, Feb 7 The 25bps rate cut by the Reserve Bank of India (RBI) is anticipated to complement the consumption-boosting measures announced in the Union Budget 2025-26, providing a boost to domestic demand drivers, industry leaders said on Friday.
According to RBI Governor Sanjay Malhotra, the MPC has also unanimously decided to continue with a neutral stance and will focus on inflation while supporting growth.
“This calibrated approach by the Central Bank reflects a careful balance between fostering economic growth and maintaining financial stability,” said Chandrajit Banerjee, Director General, CII.
Importantly, the recent series of liquidity easing measures introduced over the past two weeks will aid in the effective transmission of the rate cut to the productive sectors of the economy.
Additionally, the RBI's indication that it will inject liquidity as needed to address any tightening of frictional and durable liquidity in the system will ensure that monetary policy transmission remains effective, said Banerjee.
According to Lakshmanan V, Group President and Head-Treasury (treasurer), Federal Bank, the MPC was on reasonably expected lines on all counts -- rate cut, stance and statement on liquidity measures.
“This decision was a logical extension to the liquidity measures taken in January, along with clear assurances given by the RBI to support liquidity whenever necessitated going forward. Today’s outcome sets the stage for rate cut expectations in April, unless inflation and global macro-conditions play havoc,” Lakshmanan commented.
The decision to lower the policy rate comes amid moderating growth momentum, increasing challenges from external factors, and a slowdown in inflationary pressures.
“The GDP growth for the upcoming year is projected at 6.7 per cent, which is in line with our projection. On the liquidity front, the governor has assured proactive measures ensuring comfortable liquidity conditions,” said Rajani Sinha, Chief Economist, CareEdge Ratings.
With the Donald Trump Administration in the US shaking up global markets, we expect the RBI to be proactive in using liquidity and forex management tools.
S&P Global expects the US Federal Reserve to move more gradually, cutting just 25 basis points (bps) in the first half of 2025 after slicing 100 bps between September and December 2024.
“The MPC moves will depend more on domestic inflation. We expect healthy kharif and rabi crop to ease food inflation and likely drive CPI inflation down to 4.4 per cent next fiscal,” said Dharmakirti Joshi, Chief Economist, Crisil Limited.
“We expect the MPC to cut another 75-100 bps off the policy rate next fiscal,” he added.
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