New Delhi, Feb 6 While a 25bps rate cut in the upcoming RBI MPC policy is less of a market debate, the actions around “what beyond a cut” will be more watched, a report said on Thursday.
Easing by stealth via unconventional policy tools like liquidity and regulatory measures will continue.
The RBI may also want to address the stress in the non-sovereign money market, according to a report by Emkay Global Financial Services.
“We expect another round of Rs 300 billion Open Market Operations (OMOs), implying Rs 900 billion+ in total in FY25E. A CRR cut is a close call, but a temporary cut may not address the underlying banking stress,” the report mentioned.
Easing in ensuing tighter Liquidity Coverage Ratio (LCR) norms (April 2025 onwards) and lending standards might be a preferred policy tool. We will also watch for additional capital account easing actions via the FCNR route.
According to the report, “noisy food inflation” drove a large part of the headline inflation in FY25, while demand slack continued to keep core subdued.
However, near-term food pressures look to be abating with broad-based easing across food categories, and January inflation tracking sub-4.5 per cent (December 5.2 per cent).
“Q4FY25E headline inflation is likely to ease to 4.4 per cent vs 5.6 per cent in Q3FY25, supported by strong Kharif output,” the report noted.
For FY26 as well, inflation on an average will ease to 4.5 per cent vs 4.8 per cent-4.9 per cent in FY25.
Recent RBI measures since December were a beginning of easing by stealth, and “we think that this route will continue ahead”.
Normalising CRR to 4.0 per cent (adding over Rs 1 trillion liquidity) in December was the first of the liquidity infusion steps, followed by a slew of measures in January 25 (adding Rs 1.5 trillion liquidity).
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