RBI Expected to Implement Growth-Driven Measures in February Monetary Policy Review: Jefferies

Synopsis

Jefferies predicts that the RBI's February monetary policy review will adopt a growth-oriented approach, especially in light of upcoming governmental fiscal measures. The report highlights recent liquidity injections aimed at enhancing lending and reducing interest rates in response to slowing economic growth.

Key Takeaways

RBI's February meeting may yield growth-friendly policies.
Liquidity infusion of Rs 1.5 lakh crore expected.
Potential dovish stance on rates could impact the rupee.
Concerns over government capital expenditure projected to influence the budget.
Temporary factors contributing to economic slowdown.

Mumbai, Jan 29 (NationPress) The upcoming meeting of the RBI’s monetary policy committee in February is anticipated to unveil some favorable developments with a focus on stimulating growth, as per the brokerage firm Jefferies.

The Reserve Bank of India (RBI) is likely to adopt a pro-growth policy direction, especially with the government poised to maintain a stringent fiscal approach on February 1, Jefferies noted in its report.

The recent decision by the central bank to enhance liquidity is a promising sign, according to the report. It highlighted the RBI’s announcement this week regarding the infusion of Rs 1.5 lakh crore liquidity into the banking framework over the next few weeks until the end of February.

If the committee, led by RBI Governor Sanjay Malhotra, opts for a possibly dovish view on liquidity or interest rates, the rupee could face further depreciation, Jefferies suggested in its analysis.

Jefferies expressed a cautious outlook on the upcoming budget, citing an anticipated decline in government capital expenditure. However, the stock market corrections have largely factored in these concerns, it added. A high revenue base and the government's commitment to fiscal consolidation are expected to cap significant spending growth.

Regarding the slowdown in economic growth, Jefferies believes that most factors are temporary. The March quarter is expected to show improvement as the substantial underspending witnessed in the first eight months of fiscal 2025 is likely to rebound from November 2024 through March 2025.

Moreover, enhanced liquidity and regulatory improvements could lead to a positive uptick in the coming months, it further added.

Demands for increased spending on social welfare initiatives are escalating, along with expectations of a potential rise in corporate taxes. If neither occurs, the market may feel relieved, according to Jefferies.

In its monetary policy review on December 6, the RBI reduced the cash reserve ratio (CRR) for banks by 0.5 percent to ensure more funds are available for lending to boost economic growth while maintaining the key policy repo rate at 6.5 percent due to inflation concerns.

The CRR was cut from 4.5 percent to 4 percent, marking the first reduction since March 2020. This change allows banks to hold a smaller portion of deposits as idle cash.

The CRR cut resulted in an infusion of Rs 1.16 lakh crore into the banking system, aimed at lowering market interest rates to foster growth.

On Monday, the RBI announced plans to inject an additional Rs 1.10 lakh crore into the banking system through open market purchase auctions of government securities and a variable rate repo auction. Additionally, a $5 billion dollar-rupee swap auction will also be conducted to provide further liquidity. These initiatives are designed to enhance the availability of funds for banks to extend loans and to reduce interest rates, aiming to stimulate growth amidst a slowing economy marked by geopolitical uncertainties.