Reserve Bank of India likely to slash interest rate by 25 bps

The bank has kept the repo rate unchanged at 6.5 per cent since February 2023; the last time the RBI had reduced the rate was during Covid times and thereafter, it was gradually raised to 6.5 per cent

Mumbai: The Reserve Bank of India (RBI) is likely to reduce the key interest rate by 25 basis points this week after keeping it on hold for two years, complementing the Union Budget initiatives to push consumption-led demand, though the sliding rupee continues to be a concern.

As the retail inflation has remained within the Reserve Bank’s comfort zone (less than 6 per cent) for most of the year, the central bank can take rate action to boost growth hit by sluggish consumption, opined experts.

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The RBI has kept the repo rate (short-term lending rate) unchanged at 6.5 per cent since February 2023. The last time the RBI had reduced the rate was during the Covid times (May 2020) and thereafter, it was gradually raised to 6.5 per cent.

Newly appointed Reserve Bank Governor Sanjay Malhotra will be chairing his first Monetary Policy Committee (MPC) meeting starting Wednesday. The decision of the six-member panel will be announced on Friday (February 7).

“There is a higher probability of a rate cut this time for two reasons. First, the RBI has already announced liquidity enhancement measures, which have improved conditions in the market. This appeared to be a prerequisite for cutting rates,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

Sabnavis further said the Union Budget has provided a boost and it may be appropriate to lower the repo rate in tandem to support the same. The Reserve Bank has announced measures to infuse Rs 1.5 lakh crore worth of liquidity in the banking system on January 27.