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The Reserve Bank of India (RBI) is expected to lower the key interest rate by 25 basis points this week, after maintaining it on hold for two years. This move is anticipated to complement the Union Budget's initiatives aimed at boosting consumption-driven demand, although concerns over the depreciating rupee persist. Experts suggest that with retail inflation staying within the RBI's target of under 6 percent for much of the year, the central bank may take this step to stimulate growth amid weak consumption.The RBI has maintained the repo rate (short-term lending rate) at 6.5 percent since February 2023. The last reduction in the rate occurred during the Covid-19 pandemic in May 2020, after which it was gradually increased to the current level of 6.5 percent. Newly appointed Reserve Bank Governor Sanjay Malhotra will preside over his first Monetary Policy Committee (MPC) meeting, which is set to begin on Wednesday. The decisions of the six-member panel will be unveiled on Friday, February 7.“There is a higher probability of a rate cut this time for two reasons. First, the RBI has already announced liquidity enhancement measures, which have improved conditions in the market. This appeared to be a prerequisite for cutting rates,” said Madan Sabnavis, Chief Economist, Bank of Baroda.Sabnavis further stated that the Union Budget has provided a significant boost, making it appropriate to lower the repo rate in line with these efforts to support economic growth. On January 27, the Reserve Bank announced measures to inject Rs 1.5 lakh crore worth of liquidity into the banking system.He also noted that we could see revisions to the growth forecast, especially as the National Statistical Office (NSO) had projected a growth rate of 6.4 percent for the year. It will be interesting to observe whether the RBI provides a growth forecast for FY26, although such projections are typically released in the April policy.

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