The Reserve Bank of India (RBI) is expected to cut rates by 25 basis points on Friday. In a poll of 15 economists, 11 expect a 25-bps rate cut this week by the apex bank to complement the Budget’s strategy of boosting consumption and investments in the economy. The recent liquidity-easing measures by the RBI have set the stage for a rate cut, say economists.
“We expect the RBI to cut the policy rate by 25 bps, given inflation is likely to moderate in the months ahead and to further complement the Budget’s strategy of boosting consumption and investments in the economy,” said Sakshi Gupta, principal economist, HDFC Bank. “However, this rate cut should be further complemented with appropriate liquidity-infusing measures to enable better transmission of rate cuts and spur credit growth.”
Calls for a rate cut in the February have grown louder as the growth this year has been much lower than expected. The GDP growth slowed down to a seven-quarter low of 5.4% for the second quarter ended September 2024, prompting calls for cutting interest rates by the RBI.
During the first half of 2024-25, the real GDP growth moderated to 6%, from 8.2% and 8.1% growth recorded during the first and second halves of 2023-24, respectively.
“Amidst decelerating inflation, a brief respite from a one-way dollar rally, signs of soft domestic demand, and ongoing fiscal consolidation, the onus is on the monetary policy to assume a growth supportive tone,” said Radhika Rao, senior economist, DBS Bank. “New members of the MPC – three external members joined in Oct24, new Governor assumed office in December 2024 and deputy governor in January 2025 – have openly conveyed little on their policy bias, though recent actions suggest that the path is being paved for monetary easing,” she said.
Retail inflation, based on the consumer price index (CPI), eased to a four-month low of 5.22% in December, mainly on the back of decline in prices of vegetables and pulses. Factoring in the December reading, CPI inflation in Q3FY25 averaged 5.6%, 10 basis points (bps) lower than RBI’s estimate for the quarter.
“The growth-inflation dynamics have improved since the December 2025 policy meeting. We don’t assess the fiscal stimulus provided by the Union Budget to have a significant bearing on inflation. Accordingly, we think the balance is tilted in favour of a rate cut in the February policy review,” Aditi Nayar, chief economist and head – research and outreach at ICRA. “However, if global factors cause a further material weakening in the rupee-dollar cross rate over the course of this week, the anticipated rate cut may get delayed to April 2025,” she said.
With liquidity deficit in the banking system recently breaching the `3-lakh-crore mark, the RBI last month announced a series of measures to ease liquidity conditions. The measures include carrying out open market operations (OMO) purchase auctions, conducting VRR auction and dollar-rupee buy/sell swap auctions. The first OMO auction was conducted on January 30 while VRR auction will be held on February 7.
“We are expecting the Reserve Bank to cut the policy rate by 25 basis points. Further, it may announce some additional liquidity measures such as more open market purchases and buy-sell swaps. Although, we are not ruling out a cash reserve ratio cut, but the preference will be more towards conducting OMOs and buy-sell swap,” said Gaura SenGupta, chief economist at IDFC First Bank.
On growth and inflation front, she is not expecting any revision in growth and inflation targets.
“February monetary policy meeting takes place against the backdrop of a marked slowdown in India’s growth momentum, moderating food inflation, tighter liquidity conditions and volatility in financial markets,”said Sarbartho Mukherjee, senior economist, CareEdge Ratings. “Amidst these macroeconomic conditions, the MPC’s focus is expected to shift from concerns over high inflation to supporting economic growth,” he said.