Published 20:23 IST, February 4th 2025
Will RBI Go For Rate Cut In Upcoming MPC? Report Answers
. Consequently, the growth forecast for FY25 has been revised down to 6.4% from earlier expectations.

The Reserve Bank of India ( RBI ) is expected to announce a rate cut in its upcoming policy meeting in response to growing concerns over economic growth and liquidity conditions, according to economic analysts, the report by CareEdge said on Tuesday.
According to a CareEdge report, the Indian economy saw a slowdown in Q2 FY25, with GDP growth dipping to 5.4%, compared to 8.1% during the same period last year. The moderation in growth is largely attributed to disruptions from the election period and adverse weather conditions. Consequently, the growth forecast for FY25 has been revised down to 6.4% from earlier expectations. Investment growth has particularly slowed, and challenges in urban consumption demand have been noted. Despite a temporary slowdown in investment in the first half of FY25, the outlook for the second half is not optimistic, with investment growth expected to be lower at 6.4%.
Corporate Profitability Declines
Analysts have also pointed out a contraction in corporate profitability during H1 FY25, and key FMCG companies have voiced concerns over the weakening demand in urban markets. High-frequency indicators show a mixed picture of the economy, with some sectors like retail credit and car sales moderating significantly. However, consumption in areas like petrol and diesel has seen an uptick.
Moderating Inflation Provides Relief
On the inflation front, there is some relief, as Consumer Price Index (CPI) inflation has moderated to 5.2% in December, down from 5.5% in November, primarily due to easing food inflation. The inflation rate for vegetables has also cooled, following the arrival of the new harvest. Additionally, healthy rabi sowing and favorable climatic conditions have helped contain inflationary pressures. The overall inflationary environment is expected to continue easing, with analysts forecasting CPI inflation to fall below 5% in Q4 FY25. The moderation in inflation, particularly core inflation, and the recent ease in food inflation support the argument for a potential rate cut by the RBI. CPI inflation excluding vegetables stands at 3.9%, well below the RBI's target of 4%.
Tight Liquidity Conditions and RBI’s Measures
Liquidity conditions remain tight, with systemic liquidity in deficit, driven by factors such as increased foreign exchange interventions and seasonal fluctuations in currency circulation. The RBI has responded by using measures such as variable rate repo (VRR) auctions and open market operations (OMO) to ease liquidity strains. Despite a cut in the Cash Reserve Ratio (CRR) in December, the liquidity deficit has remained persistent, hovering around Rs 2 trillion by the end of January. The government's increased expenditure could help improve liquidity in the coming months. However, analysts do not expect further CRR cuts in the immediate term, as it has already been brought down to pre-pandemic levels. The RBI is expected to continue managing liquidity flexibly to support credit demand.
Updated 20:46 IST, February 4th 2025