RBI Likely to Hold Rates Amid Economic Slowdown, Eyes Possible Cut in February

The Reserve Bank of India (RBI) is expected to maintain its policy rate as GDP growth slowed significantly in Q2 FY25. The report from HDFC Bank increases the likelihood of a rate cut in February, while pointing to weakened demand and moderated investment growth.

The Reserve Bank of India (RBI) is anticipated to uphold its current policy rate in the forthcoming meeting, as GDP growth has shown a marked deceleration in the second quarter of FY25. According to a report by HDFC Bank, the potential for a rate cut in February has grown stronger.

The report highlights a considerable slowdown in economic growth, with GDP increasing by just 5.4% year-on-year in Q2, down from 6.7% in Q1. Similarly, Gross Value Added (GVA) growth has moderated to 5.6% from the previous quarter's 6.8%, suggesting a widespread economic downturn.

Analysts note signs of weakened demand, particularly in urban areas, as consumption growth has tapered, supported by high-frequency indicators. The report also observed a decline in leveraged consumption with slower growth in retail lending, including personal loans and credit cards.

Additionally, investment growth has softened, with government capital expenditure falling short compared to last year and private investment remaining subdued. Nevertheless, the report expresses optimism for a rural demand recovery in the latter half of the fiscal year, buoyed by robust agricultural performance and government scheme payouts.

In its last conclave in October, the Monetary Policy Committee (MPC) of the RBI kept the policy repo rate stable at 6.5% for the tenth consecutive session. As current data underwhelms, the likelihood of a February rate cut has risen, but meanwhile, the RBI seems poised to maintain a steady course in the upcoming meeting. (ANI)

(With inputs from agencies.)