Rate cut enhances consumption-driven budget, paving way for another in April

This is a very positive move, considering the consumption-boosting measures announced in the Union Budget 2025-26. The 25 bps rate cut by the Reserve Bank of India will boost the demand drivers and aid domestic demand," say industry leaders.

RBI Governor Sanjay Malhotra said that in the released communiqué, the MPC has resolved to take a neutral stance and focus on inflation even though it will support growth.

“This calibrated approach by the Central Bank is a nice balance between growth and stability,” said Chandrajit Banerjee, Director General, CII.

Importantly, the series of liquidity measures taken in the last two weeks will help in transmission of the rate cut to the productive sectors of the economy.

RBI said it will inject liquidity as and when required to address any tightening of frictional and durable liquidity in the system. “This will ensure monetary policy transmission is effective,” said Banerjee.

Lakshmanan V, Group President and Head-Treasury (treasurer), Federal Bank (NSE:FED) said the MPC was on expected lines on all fronts – rate cut, stance and statement on liquidity measures.

“This was a logical extension to the measures taken in January and clear assurances given by RBI to support liquidity going forward. Today’s outcome sets the stage for rate cut in April unless inflation and global factors go wrong,” said Lakshmanan.

The rate cut comes at a time when growth momentum is slowing, external challenges are increasing and inflationary pressures are reducing.

“GDP growth for next year is expected at 6.7% which is in line with our projection. On liquidity front, governor has assured of proactive measures to keep liquidity comfortable,” said Rajani Sinha, Chief Economist, CareEdge Ratings.

With Donald Trump administration in US shaking up markets, we expect RBI to be proactive in using liquidity and forex management tools.

S&P Global (NYSE:SPGI) expects US Federal Reserve to move gradually and cut just 25bps in 1H2025 after 100bps between September and December 2024.“Inflation will be the key. We expect good kharif and rabi crops to reduce food inflation and take CPI to 4.4% next year,” said Dharmakirti Joshi, Chief Economist, Crisil Limited.

“MPC will cut another 75-100 bps next year,” he said.