The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday reduced the benchmark lending rate by 25 basis points, marking the first rate cut in five years. The committee's decision was announced by RBI Governor Sanjay Malhotra during his debut policy speech.
This decision aims to boost sluggish economic growth, supported by easing inflation expectations.
On domestic demand and consumption, Katrina Ell of Moody's highlighted the positive impact of the rate cut on demand. She said that the move was largely anticipated by the markets and that the RBI is treading carefully about potential implications of a weak rupee.
Keki Mistry echoed this sentiment, emphasising the benefits for consumers. The rate cut will help improve consumption, aid those with home loans, he said.
Aditi Nayar of ICRA said, "This rate cut is expected to be very shallow...don’t see more than one more rate cut." She added that the 4.2% CPI inflation forecast is in line with their estimates.
Also Read: Monetary Policy Preview — Will RBI Acquiesce To Rate Cut Demands Or Stay Put? Systematix' Analysis
Keki Mistry also commented on inflation, “Don’t think the governor seems too worried about inflation. Could see two more rate cuts if we see good monsoons.”
Nayar expressed cautious optimism about growth, saying she certainly expects growth to rebound from the lows of Q2. Domestic demand and government capex will be key drivers of growth, he said.
Katrina Ell, however, was more reserved. She says growth might not pick up as much as the RBI is expecting. "Think one 25 bps rate cut doesn’t materially change the game at this point," she said.
On liquidity and market stability, Ajay Manglunia pointed out the lack of measures on liquidity.
However, he said, February is a month without any major government borrowings. Stability in terms of liquidity, rate trajectory, and currency will be comforting for the markets, he added.
Alok Singh believes more rate cuts are likely. He believes the RBI decision was a very balanced policy, given the conditions in the dollar-rupee market.
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