Synopsis
As the US Federal Reserve pauses its rate cuts, the Reserve Bank of India is set to implement liquidity easing measures. Analysts indicate a strong case for a 25bps rate cut in February, with expectations of positive developments in the upcoming monetary policy meeting.Key Takeaways
- US Fed pauses rate cuts.
- RBI starts liquidity easing.
- Justification for a 25bps cut in February.
- Positive surprises expected from RBI's upcoming meeting.
- CRR cut to enhance lending and spur growth.
New Delhi, Jan 30 (NationPress) With the US Federal Reserve halting its rate cut cycle, the Reserve Bank of India (RBI) has initiated liquidity easing measures, and the reasoning behind a 25bps rate cut in February is quite strong, analysts noted on Thursday.
The Fed maintained rates as anticipated at 4.25 percent-4.50 percent, with Chair Jerome Powell indicating that the US central bank is in “no rush” to lower rates in the near future due to ongoing uncertainties surrounding US President Donald Trump's policies and their ramifications.
“A robust labor market and a steadily expanding economy provide the Fed with sufficient flexibility to evaluate incoming data, as the FOMC believes that significant reductions in inflationary pressures must be evident before implementing the next series of rate cuts,” stated Akshay Chinchalkar, Head of Research at Axis Securities.
This aligns with traders' sentiments—the initial rate cut for this year is not expected until June, with a total of two cuts summing up to 50 bps anticipated throughout the year, he elaborated.
The Fed envisions delivering two rate cuts in 2025, potentially commencing in late Q2.
Domestically, the Central Bank has embarked on liquidity easing, and the justification for a 25bps rate cut in February appears to be strong, pointed out Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth by Angel One.
As per brokerage firm Jefferies, the RBI’s upcoming monetary policy committee meeting on February 7 is expected to yield some positive surprises with a growth-oriented strategy.
The recent actions taken by the central bank to enhance liquidity are seen as a favorable sign, the report indicated. It referred to the RBI’s recent announcement regarding the injection of Rs 1.5 lakh crore liquidity into the banking system over the forthcoming weeks until the end of February.
During its monetary policy review on December 6, the RBI reduced the cash reserve ratio (CRR) for banks by 0.5 percent to facilitate more funds for lending, aiming to boost economic growth while maintaining the key policy repo rate at 6.5 percent due to inflation concerns.
The CRR cut has infused Rs 1.16 lakh crore into the banking system, aimed at lowering market interest rates to foster growth.
