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Published 18:16 IST, February 3rd 2025

RBI MPC On February 7: Will Sanjeev Malhotra Cut Rates In His First Big Meeting?

The Union Budget 2025-26 has introduced major income tax concessions, especially for the middle class, to stimulate consumption and overall demand growth.

Reported by: Musharrat Shahin
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RBI Likely to Cut Interest Rates After Two Years
RBI Likely to Cut Interest Rates After Two Years | Image: Pixabay

The Reserve Bank of India ( RBI ) is expected to reduce the key interest rate by 25 basis points this week, after keeping it unchanged for two years. This move aims to complement Union Budget measures to boost consumption-led demand, though the weakening rupee remains a concern. RBI is likely to take this major decision in the upcoming MPC meeting. 


“The RBI is likely to reduce the key interest rate by 25 basis points this week after keeping it on hold for two years” reported Reuters.

Interest Rate Cut: Inflation


Retail inflation has mostly stayed below 6%, allowing the central bank to consider a rate cut to support growth affected by sluggish consumption. The RBI has maintained the repo rate at 6.5% since February 2023, with the last rate cut occurring in May 2020 during the COVID-19 crisis.


Interest Rate: MPC Meeting 


The newly appointed RBI Governor Sanjay Malhotra will chair his first Monetary Policy Committee (MPC) meeting starting Wednesday. The six-member panel will announce its decision on Friday, February 7.

Interest Rate Cut; Experts View


As per experts, the central bank can take rate action to boost growth hit by sluggish consumption.
Madan Sabnavis, Chief Economist, Bank of Baroda believes there is a high chance of a rate cut due to improved market liquidity and the supportive measures announced in the Union Budget.

"There is a higher probability of a rate cut this time for two reasons. First, the RBI has already announced liquidity enhancement measures, which have improved conditions in the market. This appeared to be a prerequisite for cutting rates," he said.


"We can expect some changes in the forecast on growth in particular as the NSO had projected 6.4 per cent for the year. It would be interesting to see if the RBI would provide a forecast for growth in FY26, though this normally is published in the April policy," he added.

Aditi Nayar, Chief Economist at ICRA stated that growth-inflation dynamics have improved since December 2025, and the fiscal stimulus from the Budget is unlikely to impact inflation significantly.

"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 2025 policy review," she said.


However, if global factors cause a further material weakening in the INR/USD cross rate over the course of this week, then the anticipated rate cut may get delayed to April 2025, Nayar added.

The Union Budget 2025-26 has introduced major income tax concessions, especially for the middle class, to stimulate consumption and overall demand growth.

Get the latest live news on Republic Business, along with breaking news and top headlines from Budget 2025, business, economy, markets, and around the world.

Updated 18:36 IST, February 3rd 2025