As the US Federal Reserve paused its rate cut cycle, the Reserve Bank of India (RBI) has begun liquidity easing, with a compelling rationale for a 25 basis points (bps) rate cut in February, industry watchers said on Thursday.
The Fed held rates steady at 4.25 percent-4.50 percent, as widely expected, with Fed Chair Jerome Powell stating that the US central bank is in “no hurry” to lower rates due to prevailing uncertainty over US President Donald Trump’s policies and their impact.
“A resilient labor 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 at Axis Securities.
Traders are not expecting the first rate cut for this year before June, with a total of two cuts aggregating 50 bps expected for the full year. The Fed’s expectation is to deliver two rate cuts in 2025, potentially beginning in late Q2.
On the domestic front, the Central Bank has started with liquidity easing, and the rationale for a 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 for February 7, is likely to bring positive surprises with a growth-favored approach. The recent move by the central bank to provide liquidity is a positive indicator, referring to the RBI’s announcement this week that it would inject ₹1.5 trillion liquidity into the banking system in the coming weeks until the end of February.
In its monetary policy review on December 6, the RBI slashed the cash reserve ratio (CRR) for banks by 0.5 percent to make more funds available for lending to spur economic growth but kept the key policy repo rate unchanged at 6.5 percent with an eye on inflation. The CRR cut infused ₹1.16 trillion into the banking system and aimed to bring down market interest rates to spur growth.
