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RBI Repo Rate Cut Expected: 0.25% Reduction Announcement on February 7

RBI Repo Rate

The budget for the financial year 2025-26 has arrived. Now the eye is on the RBI. Its Monetary Policy Committee (MPC) meeting will be held between 5-7 February. Since the focus of the budget was on increasing consumption in the country, it is expected that That the Reserve Bank will also help the government in this matter by reducing interest rates. To increase the pace of economic growth in the country, it is considered necessary to increase consumption.

Big relief has been given in income tax in the budget. Finance Minister Nirmala Sitharaman has made annual income up to Rs 12 lakh tax-free. Till now in the new regime this limit of exemption was Rs 7 lakh. Pradeep Gupta, co-founder and vice-chairman of Anand Rathi Group, said the income tax exemption is expected to increase consumption. Discretionary spending may increase, especially among the middle and upper-middle income groups.

RBI and Government Anticipated Dividend from Banks

RBI monetary policy 2025

Analyzing the budget documents, economic experts have estimated that the government may get a total dividend of up to Rs 2.56 lakh crore from RBI and public sector banks. In the last financial year 2024-25, the government had received a total dividend of Rs 2.30 lakh crore. This year the estimated amount may be even higher. According to experts, the fall of rupee and earnings from foreign currency assets could be the main reasons for this increase.

Inflation Control

RBI Repo Rate

Bajoria believes that this year the inflation rate based on retail prices may come down to around 4%. In such a situation, the Reserve Bank should not face any problem in reducing the policy rates. Kunal Kundu, India economist at Societe Generale, said that the stance of the new Reserve Bank Governor Sanjay Malhotra is opposite to that of the previous Governor Shaktikanta Das. His policies are towards supporting the economy instead of being apprehensive about inflation. He will not shy away from reducing the repo rate if necessary.

Reduced Interest Rates

RBI Repo Rate

If the Reserve Bank reduces the interest rates, the EMI burden on common people will reduce. This will result in additional savings. Rahul Bajoria, economist (India and Asia) of Bank of America Securities i.e. BofA India and Garima Kapoor, economist of Elara Securities, expect RBI to reduce the repo rate by 0.25% to 6.25% in February.

Later, by further reduction by 0.75% in a phased manner, the repo rate can be brought to the level of 5.50% by the end of 2025. Also, RBI can increase cash in the banking system by reducing the Cash Reserve Ratio (CRR) by 0.50% or by purchasing bonds from the open market.

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