MUMBAI: Days after the Union Budget, the Reserve Bank of India (RBI) on Wednesday began deliberations on its monetary policy, with expectations of a 25-basis point rate cut – the first in five years. Inflation remains within the central bank’s comfort zone, but the depreciating rupee remains a concern.
The RBI last cut the repo rate in May 2020, slashing it by 40 basis points to 4 per cent to support the pandemic-hit economy. However, the central bank began raising rates in May 2022 due to inflationary pressures from the Russia-Ukraine war, pausing only in May 2023.
Newly appointed RBI Governor Sanjay Malhotra is chairing his first Monetary Policy Committee (MPC) meeting, with the decision set to be announced on Friday (February 7).
Analysts believe a rate cut could complement budgetary measures aimed at boosting consumption-led growth.
An SBI research report predicts retail inflation will ease to 4.5 per cent in the fourth quarter, averaging 4.8 per cent for FY25. Given fiscal stimulus and global trade uncertainties, it sees room for rate cuts, projecting a cumulative reduction of 75 basis points, starting with 25 bps in February and another in April.
Rate cut could spur demand
Experts believe a rate cut could spur demand in key sectors, especially real estate. Lower rates would make home loans more affordable, boosting housing demand in mid and premium segments, said Pradeep Aggarwal, Chairman, Signature Global (India).
Dhruv Agarwala, CEO, Housing.com, echoed similar sentiments, noting that high loan rates remain a challenge for homebuyers.
Mandar Pitale, Head of Treasury at SBM Bank India, said the MPC must balance concerns over rupee depreciation and imported inflation with the need to support growth.
“It would be prudent to start the rate easing cycle in February with a 25-bps cut while retaining a neutral stance,” he said.
The Union Budget, presented on Saturday, announced major income tax concessions to boost middle-class consumption, reinforcing expectations that RBI may move towards a more accommodative stance.
