Very good news for middle class people of India. Finance Minister Nirmala Sitharaman introduced several key initiatives, including income tax cuts, to boost consumption in the Union Budget unveiled on February 1. Now, RBI Governor Sanjay Malhotra is poised to take further action in this area.
Economic analysts suggest that the Reserve Bank of India (RBI) might lower interest rates by 0.25 percent during its upcoming February Monetary Policy Committee (MPC) meeting. However, the ongoing decline of the rupee’s value against the dollar is a significant concern.
So, why consider cutting interest rates?
Keeping inflation in check: Retail inflation is currently within the RBI’s target of 6 percent.
Stimulating weak consumption: A rate cut could help stimulate sluggish consumer spending.
Two-year wait: The RBI has maintained the repo rate at 6.5 percent since February 2023, with the last cut occurring in May 2020 during the pandemic.
When can we expect the RBI’s decision?
1. The new MPC meeting kicks off on Wednesday.
2. The decision will be revealed on Friday, February 7, 2025.
3. This meeting will be led by the new RBI Governor, Sanjay Malhotra.
4. It will be Malhotra’s first time chairing this crucial meeting.
What are the experts saying?
Madan Sabnavis, Chief Economist at Bank of Baroda, mentions, “There’s a strong chance of interest rate cuts since the RBI has already pumped Rs 1.5 lakh crore into the market.” He adds that lowering the repo rate would align well with the budget announcements. Meanwhile, Aditi Nayar, Chief Economist at ICRA, notes, “The 2025 budget is unlikely to significantly affect inflation, so a rate cut could be on the table for the February policy.” However, if the rupee continues to drop (INR/USD), this decision might be delayed until April 2025. On Monday, the Indian rupee fell 55 paise, closing at an all-time low of 87.17 per dollar.