Delaying cuts will result in the commitment of more growth; The RBI is expected to deliver a 0.25% rate cut in February
The RBI is set to start a rate-cutting cycle with a 0.25 percent cut in key rates at the next policy review in February, a German brokerage said on Tuesday.
A delay in rate cuts will lead to further deflation on growth, Deutsche Bank (DB) analysts said, adding that the RBI also risks falling behind the curve if action is delayed.
“We expect the RBI to cut the policy rate by 0.25 percent each in the February and April monetary (reviews), bringing the repo rate down to 6 percent in H12025,” they said.
It said the money transfer works with a huge lag in at least three-fourths of India. Hence, it sees reason for the RBI to start cutting rates from February. “We believe that if the rate reduction is brought quickly, growth will be greatly reduced,” he said, requesting that the rate reduction not be delayed.
It can be noted that the RBI held the last 11 policy review rates under former Governor Shaktikanta Das even as growth declined to multi-quarter lows, and all eyes are now set on the first rate review under his successor Sanjay Malhotra in February. .
The DB report said that in nearly two years, this is the RBI’s longest pause before it starts cutting rates, indicating that the longest the RBI has waited between the end of a rate hike cycle and the start of a rate cut cycle is 11 months. .
There is room for a 0.50 percent cut, it said, adding that the US Fed has already cut rates by one percent in 2024 to open the RBI’s room.
The note came after India’s December CPI inflation rate rose to 5.22 percent from 5.48 percent in November.
Analysts said they are predicting CPI inflation to be around 4.3 percent in January-June 2025, which is lower than the RBI’s forecast. Headline inflation will be lower than the 4.9 percent estimated by the RBI during the January-March period as vegetable prices fall sharply in the winter months when new crops arrive.
The rupee will continue to be under pressure going forward, he said, recommending that monetary policy should focus on increasing inflation dynamics.
