RBI to announce rate decision today; 25-bps reduction expected

Mumbai, PTI: New RBI Governor Sanjay Malhotra, who is chairing his first Monetary Policy Committee (MPCC) meeting, will announce the decision of the six-member panel on Friday morning, amid widespread expectations of 25 basis points reduction in interest rate after a gap of nearly five years. The Reserve Bank of India (RBI) had last reduced the repo rate by 40 basis points to 4 per cent in May 2020 to help the economy tide over the crisis following the outbreak of the Covid pandemic and subsequent lockdown.

But in May 2022 the central bank started a rate hike cycle in view of the Russia-Ukraine war and paused it only in May 2023. The three-day meeting of the MPC started on Wednesday. "We expect the MPC to vote for a 25 bps rate cut in the repo rate to 6.25 per cent after an extended pause since February 2023," DBS Group Research Senior Economist Radhika Rao said.

Another global research firm BofA Global Research echoed similar view with regard to interest rate cut. "Growth and inflation data both point towards the need to ease monetary conditions. As such, we expect the RBI to cut the repo rate by 25 bps to 6.25 per cent in the February MPC, potentially in a unanimous decision, and take steps to inject durable liquidity, by considering ano ther reduction in CRR of 50 bps, or substantial bond purchases through open market operations," BofA Global Research said. Industry chamber Assocham also said there is widespread expectations of a 25-basis point cut in the policy rate to 6.25 percent. While food inflation is moderating, there are bright prospects for the rabi crop. Going forward to March- April, food prices should be corrected giving elbow room for a reversal in the rate cut cycle, the chamber said.

According to an SBI research report, a 25-basis point reduction in interest rate is expected in the upcoming policy. Bajaj Broking Research said the RBI is likely to cut repo rate by 25 basis points for the first time in almost five years after domestic rate-setting panel has kept the policy repo rate unchanged for the last 11 consecutive meetings after raising it 250 bps between May 2022 and February 2023. It also said the RBI's recent liquidity measures aim to stabilise the financial system, reinforcing expectations of monetary easing. Bajaj Broking Research also said while the RBI ensures sufficient liquidity, a CRR cut is unlikely in the next policy.

Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution, said a rate cut has been long anticipated, but in the last monetary policy meeting, instead of reducing the repo rate, the bank opted to lower the cash reserve ratio (CRR). "Given the domestic and global economic conditions, there is strong anticipation of a repo rate cut of 25-50 basis points," Kapoor said.