All eyes on RBI amid rate cut expectations

With economic growth dipping and inflation on an upwards trajectory, all eyes are on the Reserve Bank of India’s Monetary Policy Committee’s (MPC) outcome which is going to be announced on Friday.

The RBI began deliberations on its monetary policy on Wednesday, with market expectations pointing to a 25-basis point rate cut — the first in five years. According to experts it is the ideal time for the RBI to cut interest rates.

“The Budget has pursued the path of fiscal tightening but has also ensured it remains growth supportive.

Meanwhile, led by softer food prices, consumer prices inflation (CPI) is expected to decline in January inching closer to the 4% CPI inflation target of the MPC. The tighter fiscal stance and expectations of lower inflation should open the path for rate cuts,” said Dipti Deshpande, Principal Economist, Crisil.

“We expect the MPC to bring down the repo rate by 25 basis points in its February meeting while also keeping liquidity conditions supportive,” she added.

According to Shishir Baijal, Chairman and Managing Director, Knight Frank India, given the Budget’s emphasis on reviving consumption to support economic growth, the RBI might consider turning the policy rate cycle. This potential rate cut will align with the Budget’s objectives of stimulating economic activity while managing a prudent fiscal position, which provides comfort on currency and inflation fronts. Additionally, the Centre’s balanced borrowing plan and efforts to enhance liquidity could support a favourable environment for such a rate cut.

According to experts, a rate cut will be beneficial for the real estate sector as it will make borrowings more affordable for the home buyers and reinstate consumer sentiment particularly in the lower and mid income segments. It will also potentially enhance liquidity in the banking system making it easier for developers to access financing for their projects.