Will RBI MPC cut rates: What to expect from today's monetary policy meet

RBI monetary policy: Governor Sanjay Malhotra is expected to lower the repo rate by 25 basis points, prioritising economic growth over inflation control

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting marks the first under new Governor Sanjay Malhotra, who took charge in mid-December. With a largely reshuffled six-member MPC, analysts expect a potential shift from the hawkish stance maintained by former Governor Shaktikanta Das. The three-day meeting, which began on Feb 5, will conclude today (Feb 7) with the new governor's announcement, followed by a press briefing.

Economic growth over inflation control

According to Bloomberg, Malhotra may prioritise economic growth over inflation control, raising the possibility of an interest rate cut for the first time in two years. Most economists surveyed by Bloomberg anticipate a 25 basis points (bps) reduction in the repo rate to 6.25 per cent, while some analysts suggest a larger 50 bps cut could also be on the table. A shift in the RBI’s stance towards a more accommodative approach is expected, as policymakers focus on supporting economic growth amid global uncertainties.

Rate cut expected

A report by the Bank of Baroda, cited by news agency ANI, also predicts a 25 bps rate cut. The report highlights that inflation, the primary focus of monetary policy, has moderated due to falling prices of essential vegetables such as tomatoes, onions, and potatoes. This decline has helped stabilise the Consumer Price Index (CPI), creating room for the RBI to consider easing rates. However, any rate reduction is expected to be gradual and data-dependent.

Global and domestic factors

Since the last policy meeting, both global and domestic factors have influenced financial markets. Rising geopolitical tensions, including potential tariff conflicts between major economies, have contributed to market volatility and impacted the Indian rupee. The strengthening of the US dollar has added to financial instability.

 

On the domestic front, liquidity pressures in the banking sector have emerged, with slower deposit growth and tightening financial conditions. While credit growth appears to be stabilising, overall economic expansion remains uneven, with premium goods continuing to drive consumption trends.

Revised growth & inflation projections

In its last monetary policy meet, RBI revised its gross domestic product (GDP) growth forecast for financial year 2024-25 (FY25) downward from 7.2 per cent to 6.6 per cent, with quarterly estimates also trimmed. For the third quarter of FY25, the growth forecast was lowered from 7.4 per cent to 6.8 per cent, while for the fourth quarter, it was reduced to 7.2 per cent from 7.4 per cent. The projections for the first and second quarter (Q1 and Q2) of FY26 were also adjusted, with growth expected at 6.9 per cent and 7.3 per cent, respectively.

 

On the inflation front, the retail inflation, measured by the Consumer Price Index (CPI), forecast for FY25 was raised from 4.5 per cent to 4.8 per cent, reflecting continued price pressures. The inflation estimate for Q3 FY25 was significantly revised upwards from 4.8 per cent to 5.7 per cent, while Q4 FY25 was raised to 4.5 per cent from 4.2 per cent. For Q1 and Q2 of FY26, inflation projections stood at 4.6 per cent and 4 per cent, respectively.

Economic Survey on GDP growth

The Economic Survey 2025, presented by Finance Minister Nirmala Sitharaman last week, projects India’s GDP growth at 6.3-6.8 per cent for FY26, aligning with the International Monetary Fund’s (IMF) 6.5 per cent forecast.

 

Growth is moderating due to weaker manufacturing and reduced government spending in FY25, the Economic Survey said. After an 8.2 per cent growth in the previous year, FY25’s estimate stands at 6.4 per cent.

 

Inflation was above the 4 per cent target, with retail inflation at 5.22 per cent in December.

 

The final decision on the policy rate will be announced on February 7. Live updates will be available on the Business Standard website.