US Fed pauses rate cut as RBI likely to go for steps to spur growth
As the US Federal Reserve paused the rate cut cycle, the Reserve Bank of India (RBI) has started with liquidity easing and the rationale for 25bps rate cut in February is compelling, industry watchers said on Thursday.
The Fed held rates as was widely expected at 4.25 per cent-4.50 per cent, with Fed Chair Jerome Powell saying that the US central bank is in "no hurry" to move rates lower in the foreseeable future due to prevailing uncertainty over US President Donald Trump's policies and their impact.
“A resilient labour market and a steadily growing economy give the Fed ample elbow room to assess incoming data as it comes, with the FOMC of the view that material declines in inflationary pressures need to be seen for the next bout of rate cuts,” said Akshay Chinchalkar, Head of Research, Axis Securities.
That's in line with how traders are thinking - the first rate cut for this year is not priced in before June with a total of two cuts aggregating 50 bps expected for the full, he mentioned.
Fed’s expectation is to deliver two rate cuts in 2025 and that could begin in the late Q2 of the year.
On the domestic front, the Central Bank has started with liquidity easing and the rationale for 25bps rate cut in February is compelling, said Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth by Angel One.
According to brokerage firm Jefferies, the RBI’s monetary policy committee meeting, scheduled on February 7, is likely to spring some positive surprises with a growth-favoured approach.
The recent move by the central bank to provide liquidity is a positive indicator, the report said. It was referring to the RBI’s announcement this week that it would inject Rs 1.5 lakh crore liquidity into the banking system in the coming weeks till the end of February.
The RBI had, in its monetary policy review on December 6, slashed the cash reserve ratio (CRR) for banks by 0.5 per cent to make more funds available for lending to spur economic growth but kept the key policy repo rate unchanged at 6.5 per cent with an eye on inflation.
The CRR cut infused Rs 1.16 lakh crore into the banking system and was aimed to bring down market interest rates to spur growth.
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