India’s central bank, the Reserve Bank of India, is expected to cut interest rates for the first time in nearly five years this Friday. This move is expected to boost the country’s slowing economy, according to economists and investors, with a 25-basis-point reduction in the repo rate to 6.25%.The RBI’s Monetary Policy Committee (MPC) will meet for the first time under new Governor Sanjay Malhotra, who took over in December. Nine out of 12 financial institutions polled believe the MPC will vote to reduce the repo rate, while three expect no change.The budget proposals from the Indian government will enhance comfort for the MPC, considering that it includes a fiscal deficit of 4.4% of GDP in FY26, much lower than 4.8% seen in FY25. IDFC First Bank’s chief economist, Gaura Sengupta, hailed the fiscal prudence shown by the government and opined that reduced revenue expenditure would not disturb the MPC.The RBI easing rates would be a good move as inflation is softening and the growth is expected to slow down. And then cutting rates will give the RBI the much-needed time to focus on growth management,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.Relief From the Central Bank: A Customer Sees an Opportunity in This Fiscal Policy “I am glad to hear that the central bank is expected to reduce interest rates for the first time in nearly five years. Nothing could have been better timed, as the economy has been indicating signs of slowdown.As a small business owner, I’ve been feeling the pinch of high interest rates for quite some time now. The high cost of borrowing has made it challenging for me to expand my business and create new jobs. But with the expected interest rate cut, I’m hopeful that things will start to look up.With a decisive cut in interest rates, it was a pretty bold sign and evidence that the RBI is indeed bound toward providing support to the economy and fostering growth. I appreciate the RBI’s efforts in taking such proactive measures, which would promote much-needed relief for businesses such as mine.I am also looking forward to the interest rate cut and its implications on the economy as a whole. Lower interest rates will spur consumer spending, which in turn will drive economic growth. This is just what the doctor ordered to get the economy back on track.Of course, it shows that this interest rate cut may be felt in the sector of inflation for customers, but I am confident that RBI has done all the due diligence and taken into account all the necessary factors before making such a decision.In conclusion, I welcome the RBI’s interest rate cut with open arms. This decision by the central bank clearly indicates its commitment to supporting the economy and promoting growth. I look forward to the positive impact that this decision will have on my business and the economy at large.” -AyushHowever, some analysts feel that the RBI might delay its rate cut to April due to concerns over liquidity and currency movements. According to Rajeev Radhakrishnan, chief investment officer at SBI Mutual Fund, “the RBI needs to ensure that liquidity is adequate before it can think of cutting rates”.The liquidity measures undertaken by the RBI, including variable rate repo auctions and direct bond purchases, suggest that the central bank is girding for an easing cycle. Overnight index swap (OIS) rates also reflect a rate cut as the 1-year OIS was trading at 6.33% on January 31.As usual, international factors like the weakening rupee and US Federal Reserve decisions on the interest rates would also go a long way in the decision-making process of the RBI. The RBI has been quite cautious in cutting interest rates fearing hikes in inflation across the country even though inflation is softening in international markets.Finally, the news from RBI to reduce interest rate may help slow the Indian economy by a notable development. Others opine that the RBI can wait before going ahead with cutting interest rates and also think otherwise because of this factor that a slowdown in inflation along with projected slowing growth demands cuts in rate. The verdict by RBI would attract keen interests from investors as well as from the economists; there will be some expectation signs about an even more accommodative monetary policy for RBI.
By Anusmita Bhatta
Reporting for True To Life News Media Pvt. Ltd.