The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has started its three-day meeting today, February 5, 2025. This is the first time the new RBI Governor, Sanjay Malhotra, will chair the meeting. He took over from former Governor Shaktikanta Das in December 2024. The meeting’s outcome, including key decisions on interest rates, will be announced on February 7, 2025.
Possibility of Repo Rate Cut
According to SBI Research, there may be a total cut of 75 basis points in this cycle, with the next possible reduction in October 2025. However, an ICRA report suggests that the decision may be delayed until April or June 2025. The report highlights signs of improvement in the Indian economy but notes that global factors and the rupee’s weakness against the dollar may make RBI cautious.
Boost for the Economy
India’s current economic growth rate is at a four-year low. Inflation remains above 5%, although core inflation has remained stable. In the previous MPC meeting in December 2024, the Cash Reserve Ratio (CRR) was reduced by 50 basis points, providing banks with more liquidity.
RBI’s Focus on Inflation Control
RBI’s primary goal is to keep inflation within the 2% to 6% range. In December 2024, retail inflation dropped to 5.22%, which is within the RBI’s target range. However, the inflation forecast for FY 2025 has been raised from 4.5% to 4.8%, indicating challenges in balancing inflation and economic growth.
Market Awaits MPC Decision
Experts believe that a rate cut would boost consumption and demand, especially after the government’s recent tax relief for the middle class. RBI has also injected ₹1.5 lakh crore liquidity into the banking system and announced a $5 billion swap auction. All eyes are now on the MPC announcement on February 7, 2025.