SOURCE : NEW18 NEWS
Last Updated:January 15, 2025, 15:19 IST
A German brokerage said that RBI must start a rate cut cycle with a 0.25% reduction in key rates at the next policy review in February
Reserve Bank Of India Governor Sanjay Malhotra
RBI Rate Cut Expectations: A German brokerage firm has suggested that the Reserve Bank of India (RBI) should initiate a rate-cut cycle by reducing key policy rates by 0.25% during its upcoming policy review in February. This recommendation comes amidst growing expectations for monetary easing to support economic growth and address evolving financial conditions.
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RBI Risks Falling Behind the Curve on Rate Cuts
Delaying rate cuts will only lead to more sacrifice on growth, analysts at Deutsche Bank (DB) said, adding that the RBI also risks falling behind the curve if the action is delayed.
Deutsche Bank Forecasts 0.50% Rate Cut in H1 2025
“We expect the RBI to cut the policy rate by 0.25% each in February and April monetary (reviews), bringing the repo rate down to 6% in H12025,” they said.
Lag in Monetary Transmission Justifies Early Rate Cuts
It said monetary transmission works with a considerable lag of at least three quarters in India. Therefore, it sees a justification for the RBI to start cutting rates from February.
“We believe the sooner the rate cuts are delivered, the lesser will be the growth sacrifice,” it said, asking for the rate cuts not to be delayed.
Longest Pause on Rate Cuts Under Former Governor Das
It can be noted that the RBI has held rates for the last 11 policy reviews under former Governor Shaktikanta Das even as growth declined to multi-quarter lows, and all eyes are now set on the first-rate review under his successor Sanjay Malhotra in February.
US Fed Cuts Rates, Creating Room for RBI to Act
The DB report said at nearly two years, this is the longest pause by RBI before it starts cutting rates, pointing out that the longest the RBI has waited between the end of a rate hike cycle and the start of a rate cut cycle is 11 months.
There is a space to cut by 0.50%, it said, adding that the US Fed has already cut rates by 1% in 2024 which opens up room for the RBI.
December CPI Inflation Moderates
The note came after India’s December CPI inflation moderated to 5.22% from 5.48% in November.
Analysts Predict Lower Inflation Than RBI Estimates
The analysts said they forecast forecast CPI inflation to average about 4.3% in January-June 2025, lower than the RBI’s forecast.
Headline inflation will be lower than the 4.9% estimated by RBI for the January-March period as vegetable prices come off sharply in the winter months on the arrival of new crops.
Rupee Pressure Calls for Growth-Oriented Monetary Focus
The rupee will continue to be under pressure going forward as well, it said, recommending that the monetary policy should focus on the growth-inflation dynamics.
RBI MPC Meeting Dates 2025
The Reserve Bank of India’s next MPC meeting is set to take place from February 5 to 7, 2025.
(With PTI inputs)
