The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is set to announce its latest policy decision today, February 7, amid rising economic uncertainties.
The central question remains: Will the RBI cut the repo rate by 25 basis points (bps), or will it delay the move until April?
India’s Economic Scenario & RBI’s Dilemma
Several economic factors will influence the RBI’s decision:
- Slowing Economic Growth: India’s GDP growth rate has been showing signs of moderation, necessitating policy support.
- Tight Liquidity Conditions: Market liquidity has tightened, making borrowing more expensive.
- Stock Market Volatility: Global market uncertainties and local fluctuations add pressure on the RBI.
- Moderating Inflation: While food inflation is stabilizing, overall price pressures remain a concern.
Given these factors, the RBI faces a crucial decision: to cut rates now and support growth or wait for further clarity.
Will RBI Cut the Repo Rate? Expert Opinions Differ
CareEdge Ratings: RBI Likely to Cut Rates by 25 bps
CareEdge Ratings predicts that the RBI will reduce the policy rate by 25 basis points in its February meeting while maintaining a neutral stance.
“Markets will be closely monitoring the statement of the newly appointed governor, Sanjay Malhotra. We expect the policy statement to be dovish but cautious regarding global uncertainties,” said CareEdge.
SBI Research: Successive Rate Cuts Expected
SBI Research experts expect a 25-basis-point rate cut in February, followed by another in April.
“Cumulative rate cuts over the cycle could be at least 75 basis points. After a pause in June 2025, the second round of rate cuts could resume from October 2025,” SBI Research noted.
Bank of Baroda: Fiscal Consolidation Supports Rate Cut
Bank of Baroda experts see space for a 25-basis-point rate cut, with an overall cycle reduction of 50–75 basis points.
“The ongoing fiscal consolidation and easing inflation provide RBI with the flexibility to focus on economic growth,” said Bank of Baroda analysts.
Why a Rate Cut is Likely in February
1. Economic Growth Concerns
With GDP growth showing signs of slowing, a rate cut could provide much-needed stimulus. Lower borrowing costs would encourage investment and consumer spending.
2. Inflation is Moderating
Though inflation remains a concern, recent data suggests price pressures are easing, giving the RBI room to maneuver.
3. Global Trends Favor Rate Cuts
Central banks worldwide, including the US Federal Reserve, are signaling potential rate cuts. The RBI may align its policy to maintain India’s economic competitiveness.
4. Market Expectations & Sentiment
A 25-bps rate cut is already factored into market expectations. Not delivering could lead to volatility and investor uncertainty.
Why RBI Might Hold Off Until April
1. Liquidity Concerns
India’s financial system is experiencing tighter liquidity conditions. Instead of a rate cut, the RBI may opt for liquidity-boosting measures.
2. Uncertainty in Global Markets
Geopolitical tensions and global economic uncertainties may prompt the RBI to take a wait-and-watch approach.
3. Budget Implementation & Impact
The Union Budget 2025 emphasized consumption-driven growth. The RBI may wait to assess the full impact before adjusting policy rates.
Impact of a Repo Rate Cut on Economy
1. Lower Loan EMIs
A rate cut would lead to lower home, auto, and business loan interest rates, benefiting borrowers.
2. Increased Consumer Spending
Cheaper loans can boost demand for housing, automobiles, and consumer goods, driving economic growth.
3. Stock Market Reaction
A rate cut is generally seen as positive for equity markets, encouraging investment and boosting sentiment.
4. Business Investment Growth
Lower interest rates reduce borrowing costs for businesses, promoting expansion and job creation.
Conclusion: What to Expect from RBI’s Monetary Policy
While most experts expect the RBI to cut the repo rate by 25 basis points, there is still a possibility of the central bank adopting a cautious approach and delaying the move until April.
The decision will depend on how the RBI weighs economic growth concerns against inflation risks and global uncertainties.
Stay tuned for the RBI Governor’s official announcement later today.
