RBI Meeting: MPC is likely to cut repo rate

RBI MPC (Monetary Policy Committee) started on Wednesday, February 5 2025, and will be announcing its results on Friday, February 7 2025. It is expected to conclude by reducing the repo rate. Expected to mark the first cut in almost 5 years. 

The last rate cut occurred in May 2020, when the RBI decreased the repo rate to 4% to support the economy during the Covid-induced lockdown. Subsequently, the rates were increased 7 times to 6.5% due to inflation, the Ukraine war, disruptions in supply chains, and an increase in global prices.

Most economists expect a rate cut between 25 to points. However, some believe it may be too soon, especially if US President Donald Trump raises tariff, increasing market volatility. Lower rates could also weaken the rupee against dollar.

The policy meeting includes two new RBI members – Newly appointed Governor Sanjay Malhotra and Deputy Governor M Rajeshwar Rao. Malhotra recently introduced liquidity measures, injecting Rs 1.5 lakh crore to support rate transmission. However, a liquidity shortage could keep borrowing costs high, even if the RBI cuts rates. The government has backed the rate cut.

Date and Time of RBI MPC Meeting

MPC meeting is scheduled for February 5 to February 7, 2025. On Friday, February 7, the RBI Governor will disclose the decisions made by the MPC after detailed deliberations. There are some expectations and speculations regarding a rate cut by the RBI following the MPC meeting. This will also be the first MPC meeting under the leadership of the newly appointed RBI Governor Sanjay Malhotra, who succeeded former RBI Governor Shaktikanta Das in December 2024.

MPC Meeting Key Highlights

1. Rate Cut Expectations: Expectations are relatively high for a possible repo rate cut after nearly 2 years of unchanged rates. Most economists anticipate a 25-bps cut, potentially reducing the rate from 6.5% to 6.25%. If implemented, this would be the first rate cut in nearly 5 years.

2. Newly Appointed Governor: This is the first policy meeting under the leadership of newly appointed RBI Governor Sanjay Malhotra, who took office in December 2024, replacing Shaktikanta Das.

3. Factors Influencing the Decision: Several factors are expected to influence the MPC's decision, including:

• Slow economic growth.
• Moderating inflation, with retail inflation easing to 5.22% in December.
• The government supports a rate cut.
• Stabilizing the INR.

4. Union Budget Impact: The Union Budget's focus on structural growth measures and income tax relief for the middle class has created an opportunity for the RBI to support economic growth.

5. Announcement Timing: Repo Rate decision will be made at 10:00 AM on February 7 2025, with a press conference at 12 PM where Newly appointed Governor Malhotra will discuss the MPC's decisions.