Synopsis
The Reserve Bank of India is anticipated to lower the repo rate by 25 basis points, marking the first reduction in five years. This decision aligns with the government's budgetary goals aimed at stimulating economic growth while ensuring fiscal stability, according to industry experts.Key Takeaways
- RBI likely to cut repo rate by 25 basis points.
- First rate cut in nearly five years.
- Aligns with Budget goals to stimulate the economy.
- A favorable environment for the real estate sector.
- Potential increase in liquidity for banking and financing.
New Delhi, Feb 5 (NationPress) The Reserve Bank of India (RBI) is poised to reduce the repo rate by 25 basis points for the first time in nearly five years, in line with the objectives of the Budget aimed at boosting economic activity while maintaining a prudent fiscal stance, which reassures on currency and inflation matters, industry experts indicated on Wednesday.
The central bank last decreased the repo rate by 40 basis points to 4 percent in May 2020, in an effort to support the economy during the aftermath of the Covid-19 pandemic. Presently, the repo rate is set at 6.50 percent.
With the Union Budget focusing on reviving consumption to foster economic growth, the RBI may contemplate adjusting the policy rate cycle.
Furthermore, the government’s balanced borrowing strategy and initiatives to improve liquidity could create a favorable environment for such a rate reduction, commented Shishir Baijal, Chairman and Managing Director of Knight Frank India.
A decrease in rates will be advantageous for the real estate sector as it will render borrowing more affordable for homebuyers and boost consumer sentiment, especially among lower and mid-income groups.
This move could also increase liquidity in the banking system, facilitating easier access to financing for developers’ projects.
As per Bajaj Broking Research, this potential rate reduction comes after the domestic rate-setting committee has maintained the policy repo rate unchanged for the past 11 consecutive meetings, following a hike of 250 bps between May 2022 and February 2023.
The Union Budget emphasizes consumption and fiscal prudence, providing the central bank with the opportunity to encourage growth. With the GDP growth slowing to a seven-quarter low of 5.4 percent in Q2 FY25, a rate cut appears imminent, according to the report.
The RBI's recent liquidity measures aim to stabilize the financial system, further reinforcing expectations for monetary easing.
The central bank’s MPC adopted a neutral stance in October of the previous year, allowing flexibility in policy decisions. Economists predict no changes to this stance in February, with a modest rate cut cycle expected.
"While the RBI ensures adequate liquidity, a CRR cut is unlikely in the next policy announcement, as the central bank preserves a supportive financial environment," the report stated.
