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Below the Quote on Expect repo rate cut by 25 bps by Ajay Garg, CEO, SMC Global Securities

RBI is expected to cut the repo rate by 25 basis points to 6.25% from the current rate of 6.50% in the Monetary policy meeting on February 7. The last rate cut was in May 2020 of 40 basis points to revive the economic growth affected by the pandemic. The cut in the repo rate means that the RBI will lend the money to the banks at a lower rate which in turn provides a benefit to the banks to charge lower interest rates from borrowers. This increases the money supply in the economy, strengthens liquidity, encourages borrowing, and boosts consumer demand.

The main reason why RBI will likely cut the key rate this time is the expectation of an easing of CPI to 4.5% - 4.7% in January 2025 from 5.2% in December 2024. For FY25, the real GDP growth is estimated at 6.4% which is the lowest growth rate in the last four years. Also, the GDP is expected to grow between 6.3% to 6.8% in FY26. To accelerate the GDP growth, there is an anticipation that the RBI will take the rate-cut route.

The increase in tax rebate to Rs.12 lakhs in the Union Budget for increasing the disposable income of the middle-class population and the RBI’s recent liquidity measures of OMO and VRR auctions, show a commitment that India is looking to enhance liquidity, rejuvenate sluggish demand, and foster economic growth. However, the falling rupee is a key trigger that could influence the RBI's decision as further cuts can put pressure on the Indian rupee and increase outflows from the country. Globally, the tariff tensions and the strengthening dollar index can also affect RBI's monetary policy outcome on Friday.-

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