RBI Monetary Policy Decision: Is an RBI Rate Cut on the Horizon After Union Budget 2025?

Key Decisions: Status Quo on Rates, CRR Cut

On December 6, the RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% for the eleventh consecutive time but cut the Cash Reserve Ratio (CRR) by 50 basis points to 4%. This move, aimed at injecting liquidity, could release an estimated ₹1.1-1.2 lakh crore into the banking system. The MPC maintained a 'Neutral' policy stance, reflecting caution amid rising inflation and global uncertainties. RBI Governor Shaktikanta Das emphasized balancing inflation control with economic growth.

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Growth Slows, Inflation Rises

The RBI revised its GDP growth forecast for FY25 downward to 6.6% (from 7.2%) and increased its inflation projection to 4.8% (from 4.5%). The central bank stressed vigilance, citing volatile global conditions and domestic inflationary pressures.

What Experts Say

1- Liquidity and Rate Cuts:

• Dhawal Dalal, Edelweiss Mutual Fund: Predicts the first rate cut in February 2025, contingent on easing food inflation.
• Anil Rego, Right Horizons PMS: Expects credit-sensitive sectors like auto and real estate to benefit from enhanced liquidity.

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2- Economic Balancing Act:

• Mohit Batra, Markets Mojo: Sees rate cuts post-Union Budget 2025 as the government and RBI address growth without spurring inflation.

3- Implications for Markets and Sectors

The CRR cut is expected to boost banking liquidity, improve net interest margins, and drive credit growth. Sectors such as real estate and automobiles are poised to gain. However, experts agree that durable inflation control remains critical for sustained economic momentum.

Outlook: February 2025 in Focus

While the RBI has set the stage for rate cuts, the timeline depends on inflation easing and global stability. As Union Budget 2025 approaches, fiscal and monetary alignment will be key to addressing India’s growth and consumption challenges.

The cautious optimism reflected in the RBI’s balanced approach signals stability amid economic complexities, with February 2025 emerging as a potential turning point for monetary easing.

Also Read: India’s Services Sector: Growth Holds Firm Amid Cost Pressures