New Delhi, February 2025.
The Reserve Bank of India (RBI) reduced its key repo rate on Friday for the first time since May 2020, aiming to provide stimulus to the sluggish economy, which is projected to grow at its slowest pace in four years during the current fiscal year.
Shanti Ekambaram, Deputy Managing Director, Kotak Mahindra Bank Said in line with market expectations the RBI announced a 25 Bps Repo rate cut – this after nearly 5 years. Interesting takeaway was the need for considering “ flexible inflation targeting” , which will help balance inflation and growth. The stance however was retained at Neutral more due to potential risks from volatile global markets. GDP growth in FY’26 is estimated at 6.7%and average inflation at 4.2%. Expect RBI to remain vigilant and do what it takes to ensure adequate liquidity to support growth but also keeping an eye on inflation. Future action will depend on global headwinds and local macro-economic factors.
“Given the long and variable lags, the rate reduction avoids the risk of falling further behind the curve and buys some growth insurance in hugely uncertain and volatile global environment.” SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank Said “The MPC’s decision to cut Repo rate by 25bp and maintain neutral stance is completely in line with our expectations. The softening growth and inflation outlook has provided room to monetary easing. Further from here , we expect the RBI will need to monitor liquidity conditions more closely to ensure liquidity stance remains in sync with the policy stance.”
The RBI has announced the much expected 25 bps repo rate cut – focused on cautious growth, while remaining aligned to a durable inflation target! Headwinds stemming from global volatility seems to be high on RBI’s radar, as they maintained a neutral stance, while all domestic markers – Inflation, Agri & Mfg. activity, Consumption demand, Liquidity & Financial Markets – are showing a directionally positive flavor. For me, takeaway of the policy is, “be prepared for a smoother albeit slower ride, than a bumpy fast-paced one!” said Manish Kothari, President & Head Commercial Banking, Kotak Mahindra Bank Limited
