RBI likely to cut repo rate by 25 bps in Governor Sanjay Malhotra’s first policy move

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is set to announce its first monetary policy under new Governor Sanjay Malhotra on Friday.

Experts anticipate that the central bank may cut the repo rate by 25 basis points (bps) to support economic growth while keeping inflation under control.

According to a Bank of Baroda report, inflationary pressures have eased, primarily due to a decline in the prices of essential vegetables such as tomatoes, onions, and potatoes. This improved supply scenario has contributed to lower volatility in the Consumer Price Index (CPI), providing the RBI with some room for a measured rate cut.

The report states, “Balancing and counterbalancing all macro and geopolitical factors, we believe there remains space for a 25 bps rate cut by the RBI in the upcoming policy.”

The current repo rate stands at 6.50 pe rcent, and the RBI has kept it unchanged for the past eleven consecutive meetings.

In the December policy meeting, the MPC voted 5-1 in favor of maintaining the rate, prioritising stability while monitoring inflation trends. However, the December policy saw a 50 bps cut in the Cash Reserve Ratio (CRR), bringing it down to 4 per cent–a move aimed at improving liquidity and supporting credit growth.

While a 25 bps rate cut is widely expected, analysts also believe the RBI will need to implement additional liquidity measures to ensure adequate cash flow within the banking system.

A report by Emkay Research pointed out that investors and market participants are looking for policy measures beyond a conventional rate cut, as liquidity concerns remain an ongoing challenge.

For the financial year 2024-25, the RBI has projected India’s real GDP growth at 7.2 percent, while the Economic Survey estimates 6.4 percent growth, aligning with the National Statistical Office (NSO) projection.

Given these economic projections, a measured and cautious approach toward rate reduction is likely, with future cuts dependent on evolving inflation trends and macroeconomic conditions.

As the MPC prepares for its latest decision, market participants will closely watch Governor Sanjay Malhotra’s stance on rate cuts and liquidity management, along with any further policy announcements aimed at sustaining India’s economic momentum.