RBI Likely to Keep Policy Rate Unchanged, Rate Cut Expected in February

RBI News: The Reserve Bank of India (RBI) is expected to keep its policy rate unchanged at its upcoming meeting next week, according to a report by HDFC Bank. This decision comes after India’s GDP growth slowed significantly in the second quarter of FY25. However, the chances of a rate cut in February have risen because of weaker-than-anticipated economic data.

Slower GDP Growth

India’s GDP growth for the second quarter of FY25 slowed to 5.4%, down from 6.7% in the first quarter. Similarly, Gross Value Added (GVA) growth decreased to 5.6% in Q2, compared to 6.8% in Q1, indicating a general slowdown in the economy.This decline in economic activity has led experts to predict that the RBI will likely hold off on any rate changes at its next meeting but may consider reducing rates in February.

Weak Demand and Investment Slowdown

The report highlighted signs of weak demand in the economy, particularly from urban areas. Consumption growth has slowed, with a drop in retail spending, including personal loans and credit card use. Investment also showed signs of weakness, with lower government capital expenditure and muted private investment.

Rural Demand May Offer Hope

On a positive note, the report suggests that rural demand is expected to recover in the second half of the fiscal year. This recovery is anticipated to be driven by strong agricultural performance, government scheme payouts, and increased government spending, which could boost economic activity.

RBI’s Next Steps

The RBI’s Monetary Policy Committee (MPC) had last kept the policy repo rate unchanged at 6.5% in October, marking the 10th consecutive meeting with no rate change. With the GDP data showing weaker growth, the chances of a rate cut in February have risen. However, for now, the RBI is expected to maintain a "wait-and-watch" approach and keep the policy rate steady in the upcoming meeting.

Also read: Country's GDP declined in the second quarter, falling up to 5.4%

SUMMARY

The Reserve Bank of India (RBI) is expected to keep its policy rate unchanged at its upcoming meeting due to slower-than-expected GDP growth in the second quarter of FY25. India’s GDP growth slowed to 5.4%, down from 6.7% in the previous quarter, indicating a broad economic slowdown. Weak demand, particularly in urban areas, and lower investment levels are contributing to the slowdown. However, rural demand is expected to recover, driven by strong agricultural performance and government support. While the RBI is likely to maintain the current policy rate in its next meeting, the chances of a rate cut in February have increased.