SBI Research Predicts RBI Will Implement 0.25% Rate Cut on February 7

New Delhi, Feb 4 (NationPress) Economists at SBI anticipate that the RBI will declare a 0.25 per cent rate cut during the monetary policy committee meeting scheduled for February 7. As the fiscal stimulus from Budget 2025-26 unfolds, the RBI has potential for rate reductions in the short term, according to a report by SBI Research released on Tuesday.

The report further indicates that a total rate cut of at least 0.75 per cent could occur over the economic cycle, with two consecutive rate reductions projected for February and April 2025.

Following a pause in June 2025, the next phase of rate cuts could commence from October 2025, it mentioned.

Additionally, the current hold by the US Federal Reserve provides the RBI with the opportunity to ensure that inflation expectations are fully stabilized, as noted in the report.

The document emphasized that effective coordination between monetary and fiscal policies will necessitate careful management while the Government adheres to the Fiscal Responsibility and Budget Management (FRBM) guidelines.

The report also calls for a reassessment of the RBI Liquidity Framework since a stringent liquidity scenario could negatively affect credit flow in the economy. As of January 31, 2025, the average liquidity deficit since December 16, 2024, stood at Rs 1.96 lakh crore, while the average cash balance of the Government of India for the same timeframe was Rs 2.1 lakh crore.

"Given the recent liquidity infusions by the RBI, we predict that the sustainable liquidity at the close of the financial year may reach around Rs 0.6 lakh crore, resulting in a system liquidity surplus of about Rs 1 lakh crore," the report stated.

It also pointed out that the global economy shows ongoing resilience, with an expected growth rate of 3.2-3.3 per cent by 2025. Global inflation continues to decline and is anticipated to meet inflation targets for most central banks, albeit at varying paces across different regions.

The repercussions of trade disputes on global growth, and consequently on inflation, remain ambiguous at this moment. Although the new US administration's tariff decisions have thus far been limited to North America and somewhat to China, a widespread tariff imposition globally has not yet surfaced, as per the report.

The prevailing sentiment suggests that a new wave of trade conflicts could diminish global GDP growth by 30-50 basis points, with varying impacts across regions. The regional outcomes will be more complex and dependent on local economic structures and the current phase of the business cycle, according to the SBI report.

Against this global backdrop, the Indian economy is entering the fourth quarter under the influence of the Union Budget 2025-26. With fiscal stimuli aimed at bolstering consumption and a general policy of fiscal consolidation, the net market borrowings by the Centre are projected at Rs 11.5 lakh crore for FY26.

"Consequently, we believe that financing the fiscal deficit will remain manageable. We estimate that 75 per cent of the total financing may be achieved through long-term instruments. The current OMO purchases by the RBI amount to Rs 60,000 crore, representing 3.8 per cent of available AFS securities as of September 2024," the report further indicated.

With credit growth reflecting a moderate trend, despite a sequential slowdown, the durable liquidity in the banking system by the end of FY25 is projected to be around Rs 0.6 lakh crore, with overall system liquidity estimated to be approximately Rs 1 lakh crore surplus, as the report concluded.