On Friday, the Reserve Bank of India (RBI) implemented its first key repo rate reduction since May 2020, a move intended to invigorate an economy projected to experience it is slowest Facing its slowest expansion in four years this fiscal year.
The Monetary Policy Committee (MPC), comprising three members from the RBI and three external experts, decided to lower the repo rate by 25 basis points to 6.25%, a widely anticipated action following 11 consecutive policy meetings where the rate remained unchanged.
Expert Perspectives:
Garima Kapoor, Economist at Elara Securities: Noted the policy’s neutral tone, highlighting the governor’s pragmatic approach to implementing macro-prudential guidelines. She also found reassurance in the commitment to providing liquidity, suggesting ongoing measures through Open Market Operations (OMOs) and swaps.
Gaura Sengupta, India Economist at IDFC First Bank: Interpreted the decision as a gradual shift towards a less restrictive monetary policy, driven by expectations of inflation aligning with target levels. She anticipates the RBI will continue infusing durable liquidity via OMO purchases and USDINR buy-sell swaps, estimating a need to inject nearly 3 trillion rupees this year to support credit growth.
Deepak Agrawal, CIO Debt at Kotak Mahindra AMC: Emphasized the central bank’s commitment to ensuring sufficient durable liquidity in the system and taking proactive measures to achieve this. He believes the rate cut, combined with assurances on liquidity, should stimulate consumption and revive growth. He anticipates an additional 25 bps rate cut by June 2025.
Anuj Puri, Chairman of ANAROCK Group: Foresees a positive impact on the housing sector, particularly for affordable housing buyers, provided banks pass on the benefits to buyers. However, he cautioned that rising property prices and high inflation could diminish the rate cut’s effectiveness. The timely and seamless transmission of benefits to borrowers by banks remains a key factor.
Kunal Kundu, India Economist at Societe Generale: Suggested the rate cut was appropriate, given the budget’s announcement of a lower tax burden on households, to support domestic demand, which is weakening. He noted the rate cut acts as insurance against economic uncertainty but requires further reform measures.
Also Read: RBI Adjusts CRR to Drive Growth, No Change in Repo Rate
Radhika Rao, Senior Economist at DBS Bank: Highlighted the MPC’s unanimous vote for the cut, adopting a cautious view on growth, while winter disinflation in food is expected to mitigate risks to price stability. She also noted that the recent rupee depreciation did not deter policymakers, who will likely use intervention tools to defend the currency. While cutting rates, the MPC stopped short of signaling a completely dovish outlook, sticking to a “neutral” stance.
Boman Irani, President of CREDAI National: Stated that the RBI’s move complements recent budget measures and was essential after the Cash Reserve Ratio (CRR) cut. He anticipates that further rate reductions will accelerate housing sales, especially in the mid-income and affordable segments9.
Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank: Said the MPC’s decision aligned with expectations, given the softening growth and inflation outlook. She emphasized the need to monitor liquidity conditions closely to ensure they remain in sync with the policy stance.
The rate cut is anticipated to bring relief to borrowers, with potential decreases in loan interest rates for homes, vehicles, and businesses67. This action follows the government’s proposal to make normal income up to Rs 12 lakh tax-free under the new tax regime for the financial year 2025-2667. It is expected to drive housing demand, stimulate market activity, and encourage real estate investment7. Analysts will be closely monitoring how this policy shift revitalizes economic growth while effectively managing inflation.
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