Daijiworld Media Network- New Delhi
New Delhi, Feb 6: The Reserve Bank of India (RBI) is expected to announce a 25 basis points (bps) cut in the repo rate during its upcoming monetary policy meeting on February 7, according to a recent report by Bank of Baroda.
The report highlighted that inflation, a key focus of RBI’s monetary policy, is showing signs of moderation, creating room for a potential rate cut.
"Considering macroeconomic and geopolitical factors, we believe there is scope for a 25-bps rate cut in the upcoming policy decision," the report stated.
The easing of inflationary pressures has been attributed to a decline in the prices of essential vegetables such as tomatoes, onions, and potatoes, leading to lower volatility in the Consumer Price Index (CPI). This stabilization in food prices provides RBI with some flexibility to begin easing interest rates, although the process is expected to be gradual and dependent on future economic data.
Since the last monetary policy meeting, both global and domestic factors have significantly influenced financial markets. Among the key developments is the increased volatility in asset markets, particularly affecting the Indian rupee.
The report noted that rising geopolitical tensions and uncertainties in trade policies—including potential tariffs and counter-tariffs by major economies such as the United States, Canada, Mexico, and China—have contributed to the strengthening of the US dollar, which in turn has impacted global currencies, including the rupee.
Additionally, domestic liquidity conditions have tightened, with banks facing challenges due to slower deposit growth. Although credit growth has stabilized, liquidity pressures within the banking sector remain a concern.
Furthermore, domestic economic growth remains uneven, with premium-priced goods continuing to dominate consumer spending trends. Corporate financial results for the third quarter of the fiscal year indicate a slowdown in sales, which is likely to be reflected in the Gross Value Added (GVA) of the manufacturing sector.
Given the current economic conditions, the report suggested that RBI may opt for a moderate rate cut, balancing the need to support economic growth while ensuring financial stability.
The central bank is expected to maintain a cautious and data-driven approach, closely monitoring global and domestic economic indicators before making further policy decisions.