The Reserve Bank of India (RBI) is set to begin its bi-monthly Monetary Policy Committee (MPC) meeting on Wednesday.
This will be the first meet for the newly appointed Governor Sanjay Malhotra, and the three new members of the MPC.
The committee will announce its decision on Friday, and it is highly anticipated that the central bank will vouch for a rate cut, specially after the measures announced by the Finance Minister in Union Budget.
What is new at this MPC meet?
The foremost thing that makes the February MPC meet special in its kind is the new Governor Sanjay Malhotra. Former Revenue Secretary, Government of India. He was also the Secretary in Department of Financial Services where he played a crucial role in steering financial reforms and strengthening the banking sector.
Also Read: Who is Sanjay Malhotra? RBI’s new Governor replacing Shaktikanta Das
Apart from the Governor, three new members will also be attending their first MPC meet.
In October last year, Centre had appointed three new members namely Saugata Bhattacharya, Economist; Dr Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development; and Professor Ram Singh, Director, Delhi School of Economics, University of Delhi.
Further, the MPC meet is coming after the presentation of the Union Budget, which has, among other announcements, announced a cut in personal income tax and also revised the limits of the tax deducted at source (TDS). These measures would provide the much-needed stimulus to consumption demand.
Also, the retail inflation has also been eased to a four-month low of 5.22% in December from 5.48% in the previous month.
Will RBI MPC go for a rate cut?
State Bank of India in its Research Report on Tuesday expected a 25-basis point rate cut in Feb’25 policy.
It said the cumulative rate cut over the cycle could be at least 75 basis points, with 2 successive rate cuts over February and April 2025.
Also Read: RBI MPC Meeting Expectations LIVE: Rate cut by 25 bps likely
SBI Research said that with an intervening gap in June’2025, the second round of rate cuts could start from October’2025.
It further said that the RBI Liquidity Framework needs to be revisited.
Reuters has also conducted a poll on the upcoming RBI MPC and it found that over 70% of respondents, 45 of 62, forecasted the RBI would cut its key repo rate by 25 basis points to 6.25%.
Last week, the RBI had announced three measures — $5 billion forex swap, Rs 60,000 crore of open market operations, and Rs 50,000 crore worth of 56-day variable day repo rate — to improve liquidity in the banking system.
Once the RBI reduces the repo rate, all external benchmark lending rates (EBLR) linked to the repo rate will come down by 25 bps, giving relief to borrowers as their equated monthly instalments (EMIs) will fall.
Governor Sanjay Malhotra, and RBI’s recent stance
Sanjay Malhotra, in the foreword of the December 2024 edition of RBI’s Financial Stability Report said the prospects of the Indian economy are expected to improve following the recent slowdown in gross domestic product (GDP) growth, with consumer and business confidence remaining high.
“Consumer and business confidence for the year ahead remain high and the investment scenario is brighter as corporations step into 2025 with robust balance sheets and high profitability,” the newly appointed RBI Governor said.
Also Read: Consumer, business confidence to remain high in 2025, investment scenario brighter: RBI Guv
Recently, to mitigate the liquidity crunch, the RBI has announced the purchase of government securities worth Rs 60,000 crore through Open Market Operations (OMO).
This strategy is expected to inject much-needed liquidity into the financial system, though it raises questions about how effective the liquidity infusion will be, given that banks are already operating near their minimum liquidity coverage ratios.
RBI’s active measures to address the liquidity deficit in the banking system has also raised speculations about whether these actions signal a gradual shift toward easing its monetary stance.
