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Informist, Friday, Feb. 7, 2025

MUMBAI – Following is a compilation of first views of economists and market experts on the Reserve Bank of India's sixth bi-monthly monetary policy statement for 2024-25 (Apr-Mar) detailed on Friday:

BANKERS

M.V. RAO, CHAIRMAN, INDIAN BANKS' ASSOCIATION, AND MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, CENTRAL BANK OF INDIA

The repo rate cut of 25 basis points from 6.50% to 6.25% is as expected considering the evolving growth-inflation dynamics. Reduction in repo rate would help in reducing the interest rates on loans linked to external benchmarks. Since the Budget has proposed measures to propel domestic consumption and higher government capital expenditure, this rate reduction from the RBI would further support growth.

There is a slight uptick in growth projections. On the inflation front, the RBI has retained the inflation projection of 4.80% for FY25. This is quite comforting and could help in further rate reduction in future monetary policies.

Though additional liquidity measures are not proposed in the policy, Governor (Malhotra) has urged banks to play actively in the uncollateralised call money market to make it deeper and vibrant for better signal extraction from the weighted average call money rate. The governor has also indicated that the proposed liquidity coverage ratio as well as project financing norms will be deferred by a year, and are not to be implemented before Mar. 31, 2026. It is a welcome move as this additional time will help banks adhere to the implementation aspects.

In the regulatory front, focus was given on cyber-security by enhancing digital security in the banking and payments system. Extending the coverage of the additional factor of authentication to online international digital payments made to offshore merchants is one such security measure announced in the policy.

Implementation of "bank.in" as exclusive internet domain for Indian banks is another measure to reduce the frauds happening in the financial sector. There are three measures for the market, such as introduction of forward contracts in government securities, extending the participation to SEBI-registered non-bank brokers to Negotiated Dealing System - Order Matching platform and formation of a working group to review the trading and settlement timings of various market segments are positive measures for the market.

The central bank has given thrust to growth in the policy with the expectation og managing price stability and financial stability of the economy. 

(Sachi Pandey)

CHALLA SREENIVASULU SETTY, CHAIRMAN, STATE BANK OF INDIA

The RBI's decision to start the easing cycle with a 25-basis-point cut was timely, contextual and also well communicated with respect to regulatory changes in transition to ensure a seamless and non-disruptive manner.

The RBI growth and inflation forecasts for FY26 clearly show the delicate trade-off between growth and inflation. The regulatory announcement on forward contract, reviewing trade settling cycle and addressing cyber-security in banks and payment systems will ensure better price discovery, more broad basing of participants and ensuring trust in digital banking.

(Sachi Pandey)

ZARIN DARUWALA, CHIEF EXECUTIVE OFFICER – INDIA AND SOUTH ASIA, STANDARD CHARTERED BANK

The 25 basis point repo rate reduction, after a hiatus of five years, is a positive move and could signal the start of a rate cutting cycle. Given the uncertain global environment, this cut along with the recent tax relief to individuals, should help a rebound in economic activity. The Monetary Policy Committee's confidence around moderating inflation augurs well for sustained economic growth. The delay in implementing the revised liquidity coverage ratio norms is likely to boost credit delivery and lower lending rates. 
 
The measures to further secure digital payments should facilitate the adoption of digital channels. Furthermore, the announcements around the introduction of forward contracts in government securities, increased access to the government securities trading platform and the review of trading and settlement timings, should enhance liquidity in market instruments.

(Vaishali Tyagi)

SHANTI EKAMBARAM, DEPUTY MANAGING DIRECTOR, KOTAK MAHINDRA BANK

In line with market expectations, the RBI announced a 25 basis-point repo rate cut. An interesting takeaway was the need for considering "flexible inflation targeting", which will help balance inflation and growth. Expect the RBI to remain vigilant and do what it takes to ensure adequate liquidity to support growth but also keeping an eye on inflation. Future action will depend on global headwinds and local macroeconomic factors. 

(Cassandra Carvalho)

LAKSHMANAN V., GROUP PRESIDENT AND HEAD – TREASURY, FEDERAL BANK

The Monetary Policy Committee was on reasonably expected lines on all counts - rate cut, stance and statement on liquidity measures. This decision, in my view, was a logical extension to the liquidity measures taken in January, along with clear assurances given by the Reserve Bank of India to support liquidity whenever necessitated going forward. Friday's outcome sets the stage for rate cut expectations in April, unless inflation and global macro play havoc.

(Gowri Lakshmi)

V.R.C. REDDY, HEAD OF TREASURY, KARUR VYSYA BANK

The Reserve Bank of India has reduced the repo rate by 25 basis points to 6.25%, marking its first rate cut since 2020. This move aligns with market expectations and aims to support economic recovery amid global uncertainties and softening domestic demand.

Maintaining a neutral stance, the RBI has expressed caution over external risks, particularly global inflationary pressures, while allowing flexibility to adjust policy based on evolving conditions.

The rate cut, along with easing liquidity conditions, complements the growth momentum from the government's Budget and signals a shift toward prioritising growth. This decision helps the RBI avoid criticism for being overly cautious.

Looking ahead, April may present an opportunity for the RBI to shift towards a more accommodative stance once global uncertainties settle.

Although the repo rate cut was largely anticipated by the market, an initial sell-off in government securities was observed. Given the softening rate trajectory, yields are expected to remain within the 6.60-6.78% range for the remainder of this current fiscal year ending March, with limited upside potential. 

(Ashna Mariam George)

ECONOMISTS

AASTHA GUDWANI, INDIA CHIEF ECONOMIST, BARCLAYS

While a policy repo rate cut was widely expected, retaining the stance as neutral and no further measures on liquidity infusion were underwhelming. The decline in inflation, further softening of food prices, transmission of past monetary policy actions and slower growth this year opened up policy space for the Monetary Policy Committee to ease. At the same time, excessive volatility in global financial markets and continued uncertainties about global trade policies were stated as the reasons for the Monetary Policy Committee to remain watchful. Retaining a neutral stance in this light will provide the Monetary Policy Committee the flexibility to respond to the evolving macroeconomic environment.

No further announcements on liquidity infusion measures were disappointing. However, we do not rule out such announcements coming shortly, as these do not need a Monetary Policy Committee and are purely a RBI decision. The governor was quite clear that the RBI will 'proactively take appropriate measures to ensure orderly liquidity conditions and that the RBI is committed to provide transitory and durable liquidity'. The RBI has already done INR 300 billion-plus of open market operations purchases on screen and announced an open market operations purchase calendar of INR 600 billion. We expect a top-up to this as liquidity conditions warrant. For now, amid improved government spending and prospects of continuation of the same as per the revised Budget estimates, liquidity deficit conditions have eased.

(Ashna Mariam George)

AURODEEP NANDI, INDIA ECONOMIST AND EXECUTIVE DIRECTOR, NOMURA

New Governor, new regime, new cut. We have been arguing for a while now that growth faces strong headwinds, underlying inflation is low and high policy rates have outlived their utility. So the RBI's policy pivot was long due and in line with our expectations. While Governor Malhotra suggested data dependence in his policy speech, we expect that this is the start to a deep rate cut cycle – we see another 75 bps of rate cuts in the pipeline this year.   

(Srijita Bose)

DHARMAKIRTI JOSHI, CHIEF ECONOMIST, CRISIL

As expected, the Monetary Policy Committee of the RBI cut rates for the first time since May 2020. The recent easing in consumer price index inflation, and the need to remain supportive of economic growth moved Mint Road. However, it maintained the policy stance at neutral, which gives it flexibility to remain data dependent and respond to exigencies.

With the Trump Administration in the US shaking up global markets, expect the RBI to be proactive in using liquidity and forex management tools. The tariff war set off will have a bearing on policy rates worldwide.

S&P Global expects the US Federal Reserve to move more gradually, cutting just 25 basis points in the first half of 2025 after slicing 100 bps between September and December.

The MPC moves will depend more on domestic inflation. We expect healthy kharif and rabi crop to ease food inflation and likely drive CPI inflation down to 4.4% next fiscal. Elevated rates have impacted India's GDP growth this fiscal. The Budget for next fiscal is mildly supportive for growth, while continuing on the fiscal consolidation path.

We expect the MPC to cut another 75-100 bps off the policy rate next fiscal. Risks from weather and US tariff policy will have a bearing on this. 

(Christina Titus) 

ARSH MOGRE, ECONOMIST - INSTITUTIONAL EQUITIES AT PL CAPITAL, PRABHUDAS LILLADHER

In line with market expectations, the RBI announced a 25-basis-point repo rate cut--its first in nearly five years--bringing the rate down to 6.25%, while retaining a neutral stance. This decision reflects a pragmatic approach to balancing growth revival and inflation management, while acknowledging the risks posed by global volatility and the rupee depreciation. The new RBI governor faced a challenging policy choice early in his tenure, having to decide between supporting domestic growth and maintaining external stability.

The neutral stance underscores RBI's commitment to a measured, data-driven easing cycle, ensuring flexibility in responding to evolving macroeconomic conditions. The concept of "flexible inflation targeting" was an interesting takeaway from today's policy, indicating a shift toward a more dynamic balancing of inflation and growth objectives. With GDP growth for 2025-26 (Apr-Mar) estimated at 6.7% and average inflation at 4.2%, the RBI has signalled that future rate cuts will remain conditional on domestic inflation trends and global headwinds.

The government's pro-consumption fiscal measures--including tax relief in the FY26 Budget--are expected to stimulate demand, and now the RBI has complemented this with lower borrowing costs. This monetary-fiscal alignment strengthens the case for sustained domestic growth, reinforcing our 7% GDP forecast for FY25. Liquidity conditions, which turned into deficit mode in December 2024, remain a key concern, and the RBI has acknowledged the need to ensure adequate liquidity support while keeping inflation risks in check.

While further rate cuts (50-75 bps in 2025) remain a possibility, the pace will be cautious and contingent on incoming data. The RBI has made it clear that every policy review will be a recalibration exercise, reflecting on inflation, growth, and financial stability dynamics. The policy move is well-timed and lays the foundation for a gradual easing cycle without triggering macroeconomic imbalances.

(Anjana Therese Antony)

MADHAVI ARORA, CHIEF ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES

As expected, RBI commenced the rate cut cycle with a 25 basis point cut, as policy trade-offs are turning less challenging with tepid underlying growth, easing inflation concerns and a perceptible change in RBI's rupee management stance.

While market participants are disappointed with no new explicit announcement on liquidity measures, we reckon such announcements do not need to be announced post-MPC per se and can be undertaken as and when needed. The January liquidity measures are yet to be completely implemented, and near-term system liquidity, including durable liquidity, appears comfortable compared to January lows.

Policymakers may also want to keep sufficient tools in reserve and not use them all in one go, especially as global dynamics are very fluid and tricky, implying the need to ensure enough tools to react in times of stress.

However, we maintain after easing in Feb 2025, system liquidity deficit will turn ugly to the tune of more than INR 2.5 trillion by the end of March 2025, sans any additional liquidity measures. This implies more measures are on the anvil if RBI finds this level of deficit uncomfortable for policy transmission, especially as the depth of the cut cycle is still arguable.

We expect more open market operations in primary and secondary markets, followed by variable rate repo auctions and more FX swaps, especially as the RBI's forward book is heavy with large near-term maturity. We expect additional OMO purchases of approximately INR 300 billion ahead, implying net OMOs of approximately more than INR 900 billion-INR 950 billion in FY25 estimate.

We maintain that possible easing in imminent tighter LCR norms (April 2025 onwards) and lending standards might be a preferred policy tool to ease regulatory conditions against a cash reserve ratio cut.

(Cassandra Carvalho)

RAJANI SINHA, CHIEF ECONOMIST, CAREEDGE RATINGS

In line with our expectations, the Monetary Policy Committee has unanimously decided to reduce the policy repo rate by 25 basis points to 6.25% while retaining 'neutral' stance. On the decision to retain the stance on the liquidity front, the governor has assured proactive measures ensuring comfortable liquidity conditions. We expect the RBI to continue upholding favourable money market conditions by elongating tenor and higher quantum of repo auctions, currency swaps, and open market operations purchases. These liquidity measures should ensure a smoother transmission of rate cuts in the money market. 

The RBI will remain watchful of global uncertainties and their impact on the Indian economy. A global trade war could adversely affect India's growth, inflation, and trade dynamics. However, there is still a lack of clarity on the extent of this impact. Sharp foreign institutional investor outflows and rupee weakening have further complicated the task for the RBI. However, moderating food inflation and benign core inflation will provide some comfort. The governor has stressed the 'flexible' aspect of the inflation targeting framework and improving forecasting models, plausibly signalling a more forward-looking approach towards the policy decisions. This will also prepare the ground for rate cuts in the future. A further rate cut of 25-50 bps is expected in FY26, depending on how growth-inflation dynamics play out. Global factors and their implications for the domestic economy will be critical for the RBI in FY26. 

(Ashna Mariam George)

MADAN SABNAVIS, CHIEF ECONOMIST, BANK OF BARODA

The cut in repo rate and the commentary does indicate that the Monetary Policy Committee could be looking more at the inflation-growth dynamics instead of only inflation, which was the earlier perception, going forward. Therefore, we could expect more rate cuts based on economic data. We do think the GDP forecast made for 2025-26 (Apr-Mar) at 6.7% is very much doable. Inflation (projection) at 4.2% for FY26 will be contingent on both a good monsoon and limited impact of imported inflation. There could be an upside here given global uncertainty, and needs to be watched. The Reserve Bank of India has also clearly stated to the market that it is not targetting an exchange rate and will also ensure orderly liquidity in the market. 

(Ashna Mariam George)

SHILAN SHAH, DEPUTY CHIEF EMERGING MARKETS ECONOMIST, CAPITAL ECONOMICS

The Reserve Bank of India's decision to cut the repo rate by 25 basis points on Friday to 6.25% confirms that, under new leadership, its priorities have tilted from containing inflation to providing more support for the economy.

On balance, the new Governor Sanjay Malhotra struck a more dovish tone than his predecessor Shaktikanta Das, though that was in part due because headline inflation has fallen over the past couple of months. Malhotra noted that "inflation has declined... and supported by a favourable outlook on food and continuing transmission of past monetary policy actions, it is expected to further moderate in 2025-26, gradually aligning with the target". We share the view that headline CPI inflation will continue grinding back down towards the 4% long-term target over the coming months. Arguably the bigger change in tone between the two governors was on the outlook for economic growth. Malhotra sounded more bearish than his predecessor. 

With the economy likely to remain in a soft patch for a few more quarters yet, further easing is on the cards: we expect another 75 bps of cuts in this cycle. That would take the repo rate to 5.50% by Jul-Sept quarter in the next financial year, a slightly more dovish view than that of the consensus prior to Friday's meeting. 

(Ashna Mariam George) 

UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK

The Monetary Policy Committee's decision to cut repo rate by 25 basis points and maintain neutral stance is completely in line with our expectations. The softening growth and inflation outlook has provided room to monetary easing. Further from here, we expect the RBI will need to monitor liquidity conditions more closely to ensure liquidity stance remains in sync with the policy stance.

(Christina Titus) 

FUND MANAGERS

SIDDHARTH CHAUDHARY, SENIOR FUND MANAGER, FIXED INCOME, BAJAJ FINSERV ASSET MANAGEMENT CO.

In line with ours and market expectations, the Reserve Bank of India has delivered first rate cut (in five years). We have been pointing out that, despite challenges, it's possible that India's consumer price inflation will progressively align towards the inflation target of around 4% in 2025-26 (Apr-Mar). In addition, growth slack has been clearly visible. This creates space for rate cuts in the coming few quarters. We stick to our long-held view of 50-basis-point rate cut in this cycle as we don't see any macro and global data as of now warranting more easing.

Market reaction clearly shows that there was an expectation of even more easing in terms of liquidity and even change in stance. But note that the governor has pointed out proactive action on liquidity going forward to support growth. 

(Ashna Mariam George) 

DEEPAK RAMARAJU, SENIOR FUND MANAGER, SHRIRAM ASSET MANAGEMENT CO.

The Reserve Bank of India's repo rate cut by 25 basis points was a welcome move given the slowdown in the economy and has been timed appropriately. Given the weakness in the rupee against the dollar and the uncertainty of tariffs by the US government, the RBI might delay future rate cuts. The RBI will be watchful on the incoming inflation data and the currency movement before taking future rate cuts. As per our expectations, April could be a status quo for interest rates. 

As the government cut taxes for the middle class and now RBI bringing down the cost of borrowing, it augurs well for a strong consumption-led growth. Discretionary spending and premiumisation themes are expected to outperform. Sectors like automotive, real estate, and discretionary segments such as jewellery, durables and white goods might do relatively better. Travel and tourism, quick service restaurants could also see the demand remaining buoyant.

As the demand grows, the cut in interest rates could be positive for private capital expenditure as well. This might reduce the burden of the government from the heavy lifting of capital expenditure. Overall, tax cuts and the lower cost of interest are the key ingredients for the stronger and structural growth in the years to come.

(Ashna Mariam George) 

PRASHANT PIMPLE, CHIEF INVESTMENT OFFICER – FIXED INCOME, BARODA BNP PARIBAS MUTUAL FUND

The RBI monetary policy committee unanimously delivered a rate cut of 25 basis points, bringing down the repo rate to 6.25% and the stance continued at 'neutral'. The policy move is in line with our, as well as market, expectations. The overall tone of the policy was dovish, with economic growth having taken precedence over inflation and currency concern in this monetary policy.

The RBI's intent to support growth is visible, while remaining watchful of global headwinds that could pose risk to domestic growth and inflation outlook. The RBI's commitment to provide sufficient liquidity to the banking system was reiterated and was encouraging. Additional liquidity measures may be announced outside MPC.

(Vaishali Tyagi)

UMESHKUMAR MEHTA, CHIEF INVESTMENT OFFICER, SAMCO MUTUAL FUND

In a landmark decision, the Reserve Bank of India's Monetary Policy Committee has reduced the benchmark interest rate by 25 basis points, the first cut in five years, aiming to stimulate economic growth while closely monitoring inflation. This move aligns with global central banks, which have been easing rates since the past year to counter economic slowdowns.

However, this decision is expected to widen the gap between US and Indian bond yields, potentially accelerating capital outflows from India. With US bond yields on an upward trajectory, the rupee is facing added depreciation pressure, exacerbating currency risks. Given these challenges, the rate cut could prove to be a balancing decision on currency stability and stimulating consumption.

(Ashna Mariam George)

OTHERS

ANKITA PATHAK, CHIEF MACRO AND GLOBAL STRATEGIST, IONIC WEALTH

The Reserve Bank of India has decreased the repo rate by 25 basis points, in line with expectations, and is maintaining the stance at 'neutral'. The markets seem to be disappointed by the lack of further liquidity injections, with both equity and bond markets correcting. However, liquidity injections can also be announced outside of policy, and therefore, it is likely premature to conclude that no further injection is on the table.

The liquidity deficit will spike without a liquidity injection in March, and the RBI is likely to alleviate the pressures. Having already conducted INR 700 billion open market operations, more liquidity injections in 2024-25 (Apr-Mar) are likely. Growth for FY25 has been revised downwards to 6.4%, and inflation is still expected at 4.8%. Overall, this is a policy in line with expectations, but markets will expect liquidity injections going forward.

(Anjana Therese Antony)

PRASUN GAJRI, CHIEF INVESTMENT OFFICER, HDFC LIFE INSURANCE CO.

As largely expected by the market, the Monetary Policy Committee of the RBI cut the policy repo rate by 25 basis points. While the monetary policy stance has been kept at neutral, the unanimous decision by the MPC outlines the comfort it has on the evolving growth and inflation dynamics.

The RBI also reassured the markets that they are vigilant on the liquidity situation and will take proactive measures to ensure that the liquidity requirements of the system are met. Overall, we believe the policy announcement is an appropriate response to the volatile global macroeconomic environment. The central bank also announced the introduction of forward contracts in government securities. This is a welcome move from a life insurance perspective as it will allow us to hedge interest rate risks more efficiently. 

(Christina Titus)

GIRISH KOUSGI, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, PNB HOUSING FINANCE

The RBI's decision to cut the repo rate by 25 basis points, the first rate cut since 2020, is a significant move that will provide much-needed relief to home loan borrowers and give a strong boost to the housing sector. Lower interest rates directly enhance affordability, making home loans more accessible for aspiring homeowners and first-time buyers.

This decision aligns with the finance ministry's recent budget announcement, which emphasised the need for fiscal and monetary policy to work in tandem to support economic growth. The rate cut is expected to drive renewed demand in the housing market, boosting overall sentiment and encouraging investments in the real estate sector.

The rate cut, combined with the recent income tax relief, will further strengthen consumer confidence and contribute to sustained growth in the housing finance sector. 

(Christina Titus) 

APURVA SHETH, HEAD OF MARKET PERSPECTIVES AND RESEARCH, SAMCO SECURITIES

The RBI delivered its first rate cut in six years by lowering rates to 6.25% from 6.5%. RBI held on to the rates at 6.5% for almost two years before delivering a cut Friday. It was widely anticipated that the RBI would deliver a rate cut and hence the market has not reacted much to the rate cuts. In fact, the India 10-year bond yields have spiked after the rate cuts as the committee unanimously voted to continue with the neutral stance. We believe that this rate cut is a welcome step in the right direction by the RBI.

However, the quantum and timing of further rate cuts will depend a lot on how the US Federal Reserve moves forward, as they are in a wait-and-watch mode because of President Donald Trump's policies and how these might affect global inflation. Along with this, the RBI also has to support the ailing rupee, which is at an all-time low. Thus, the RBI has limited scope for rate cuts going forward. 

(Anjana Therese Antony)

End

Compiled by Vinodini Yadav

Filed by Ashish Shirke

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