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Updated 16:42 IST, February 5th 2025

RBI February MPC: Rate Cut? 'Divided View', Says Banking Doyen Keki Mistry

Mistry acknowledges the challenges faced by the RBI as it seeks to balance growth and inflation in a changing global environment

Reported by: Business Desk
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Pakistan's economic growth stalls despite interest rate cuts: Report
Rate cut | Image: Pixabay

As the Reserve Bank of India ( RBI ) continues to navigate the evolving economy, and as the MPC is meeting for the first time in 2025 under the stewardship of new governor Sanjay Malhotra, the hope for rate cuts have risen. However, Keki Mistry, a veteran banker and member of the board at HDFC Bank , shared his insights on the potential impact of monetary policy decisions under the new RBI Governor. In an exclusive conversation with Republic Business, Mistry discussed the possibility of a rate cut and the implications of liquidity measures on the broader economy.

Mistry acknowledges the challenges faced by the RBI as it seeks to balance growth and inflation in a changing global environment. "In my opinion, we should see some announcement towards more liquidity in the system," he said, stressing that liquidity could provide essential support to the economy. However, he remained cautious about the prospect of an immediate rate cut.

"I think it would be a very divided view," Mistry added. While a rate cut has the potential to improve sentiment significantly, he pointed out that it could have mixed effects due to the strength of the US dollar. "If you were to do a rate cut, you could see a further depreciation in the rupee, which could impact certain industries," he noted,  highlighting the risks of such a move.

Given the current economic environment, Mistry believes there is an equal chance that the RBI may either implement a rate cut or defer it shortly. "There is a chance they could do a rate cut, but there is an equally big chance that they could defer the rate cut next time," he said.

Despite this uncertainty, Mistry is more confident about the likelihood of increased liquidity in the system. "Putting liquidity into the system, increasing liquidity into the system is something I think they will certainly do," he remarked.

Addressing the RBI's recent measures to tackle the liquidity crisis, Mistry clarified that liquidity interventions should not be immediately viewed as a precursor to a rate cut. "Liquidity is different and rate reduction is different. What is more important from a system point of view is liquidity," he explained.

Mistry further emphasised the importance of liquidity for economic activity, stating, "Economic activity would be supported more by liquidity." However, he acknowledged that a rate cut would also play a role in supporting the economy, particularly by making borrowing easier and accelerating the investment cycle.

As the RBI continues to monitor both domestic and global economic indicators, Mistry's comments offer valuable insights into the delicate balancing act facing India's central bank in its policy decisions. 

Published 16:40 IST, February 5th 2025