The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) is set to conclude its first policy review of 2025 on Friday, 7 February 2025. This review comes at a time when economic conditions and leadership changes are reshaping the landscape for the new RBI Governor Sanjay Malhotra.
Changes in Leadership Ahead of the RBI MPC Meeting
Following the RBI’s first policy review of 2025, the central bank is navigating significant changes in its leadership. RBI Governor Sanjay Malhotra took over from Shaktikanta Das after the last review. Additionally, Deputy Governor Michael Patra, who played a key role in monetary policy, retired last month, creating a temporary gap in leadership, with another deputy now overseeing the policy decisions.
The Pressure of a Falling Rupee
Another challenge facing the RBI is the depreciating rupee. After hitting 85 to the U.S. dollar in December 2024, the rupee continued its slide, reaching 87 by February 2025. This depreciation is partly driven by a strengthening dollar in global markets, as U.S. economic policies, such as higher tariffs and economic disruptions, continue to impact international trade.
The Call for an Interest Rate Cut
Despite these challenges, the clamour for an RBI rate cut February 2025 remains strong. With GDP growth downgraded to 6.4% for 2024-25, and economic activity showing limited improvement, both industry and government are urging the RBI to cut rates to stimulate growth.
Inflation Eases but Concerns Persist
While inflation has hovered above 5% for several months, there are signs of easing, with inflation moving closer to the RBI’s 4% target in January. This is adding pressure on the RBI MPC to make a tough decision on whether to reduce interest rates or maintain the status quo to prevent further rupee depreciation.
The Expected 25 Basis Points Rate Cut
Market analysts are widely expecting a 25 basis points (bps) rate cut in the RBI first policy review of 2025. This would mark the first reduction in the repo rate since the pandemic, following a series of hikes between May 2022 and February 2023.
Expert Opinions on the Rate Cut
- Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, believes that the rate cut is likely, despite the challenges posed by a weak rupee. He expects a 25 bps rate cut to help maintain growth momentum from the Union Budget 2025.
- Madan Sabnavis, Chief Economist at Bank of Baroda, agrees with the likelihood of a rate cut, noting the growth stimulus provided by the Union Budget and easing inflation. However, he also highlights the ongoing pressure on the rupee.
Will the RBI Take a Cautious Approach?
On the other hand, some economists believe the RBI will take a more cautious stance during the RBI MPC meeting February 2025. Rumki Majumdar, economist at Deloitte, suggests that while a rate cut is under consideration, the RBI may choose to keep rates unchanged while maintaining a neutral stance on monetary policy.
The Impact of Global Factors on the RBI’s Decision
Umeshkumar Mehta, CIO at SAMCO Mutual Fund, points out the global economic factors influencing the RBI monetary policy February 2025. The rising bond yields in the U.S., coupled with inflation concerns, are putting pressure on the Indian rupee, making it difficult for the RBI to take bold steps.
A Neutral Stance Likely to Continue
As the RBI monetary policy February 2025 unfolds, experts expect the central bank to maintain its neutral stance, leaving room for flexibility in future policy decisions. This approach could help the RBI navigate current uncertainties and respond to evolving economic conditions.
The Role of Liquidity Measures
Recent liquidity measures taken by the RBI are expected to continue in order to stabilize the financial system. These measures aim to ensure that the economy remains on track for recovery while giving the RBI the flexibility to adjust its stance if needed.
What to Expect from the RBI Policy Review February 2025
The RBI policy review February 2025 is crucial for determining the direction of monetary policy in the coming months. While the pressure to cut rates remains high, the RBI will need to balance economic growth with the need to protect the currency and control inflation.
According to Bajaj Broking Research, the RBI is likely to maintain its neutral stance for now, allowing for flexibility in future policy decisions. This approach will help the central bank manage inflation, economic growth, and the stability of the rupee as it navigates the challenges ahead. For more legal information get in touch with Vakilsearch today.
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