Foreign banks and wealth managers are split on whether the Reserve Bank of India (RBI) will begin its easing cycle during the February Monetary Policy Committee (MPC) meeting. Some have pushed back their expectations for a repo rate cut to the April-June 2025 period from their earlier forecast of February-April, citing tight liquidity conditions in the financial system.

At the upcoming MPC meeting scheduled for February 5-7, the RBI may prioritise liquidity management over reducing the repo rate. Economists at foreign banks anticipate the central bank could opt for another 50 basis points cut in the Cash Reserve Ratio (CRR) to address liquidity concerns instead of lowering the policy rate.

Standard Chartered Bank view 

Anubhuti Sahay, Head, India Economic Research, Standard Chartered Bank, India, said, “We push back our call for 50 basis points of repo rate cuts to April-June from February-April. We now expect a cumulative 50bps of repo rate cuts to be delivered at the April and June monetary policy meetings, instead of in February and April.”

Standard Chartered Bank Global Research sees the headline liquidity deficit in India widening further to ₹2-2.5 trillion and the core to switch to a deficit of ₹1-1.5 trillion by March 2025. “Given that a tight liquidity scenario would conflict with the RBI’s stated ‘neutral’ monetary policy stance, we think the central bank is likely to prioritise liquidity-enhancing measures rather than a repo rate cut at the February meeting. We expect another 50 basis points reduction in CRR at the February meeting,” Sahay added in a research note. 

• Also read: What prompted RBI’s warning against errant gold lending practises?

Barclays Research view

Aastha Gudwani, India Chief Economist, Barclays, said in a research note that RBI is expected to commence an easing cycle with a 25 basis points repo rate cut in February. 

“We see it gradually departing from a fixation on a point-in time target for 4 per cent CPI inflation to embracing the 2-6 per cent range as monetary policy evolves in FY25-26 and see a total of 100 basis points of cuts by March 2026,” Gudwani said. 

Meanwhile, Barclays Research has lowered the real GDP growth forecast for FY24-25 at 6.2 per cent, down from 6.5 per cent previously. “Following a disappointing growth outcome in H1FY24-25, we expect modest improvement in H2. Benefitting from a favourable base, potentially easy monetary conditions and a normal monsoon, we expect real GDP growth to improve to 7 per cent in 2025-26,” Gudwani said. 

“While there is no doubt that economic growth momentum in the fiscal year so far has sizeably fallen short of our expectations, we believe that some of this slowdown is due to underlying idiosyncrasies and statistical factors at play. The good news is that most of these issues are reversing in H2FY24-25”

Barclays Research also expects the FY24-25 fiscal deficit to come in at 4.7 per cent of GDP, 20 basis points below the budgeted target. “A bumper RBI dividend is expected to partly offset sluggish growth in sluggish corporate tax revenue and a shortfall in disinvestment proceeds. Revenue expenditure is closely tracking the budgeted trajectory, but capex is meaningfully lower, creating room for more-than targeted fiscal consolidation. This paved way for the fiscal deficit to come in below 4.5 per cent of GDP in 2025-26, in line with the finance minister’s commitment,” Gudwani said. 

HSBC Global Private Banking view

James Cheo, Chief Investment Officer, Southeast Asia and India, Global Private Banking and Wealth, HSBC, said, “We expect the RBI to deliver 2 rate cuts of 25bps over February and April, bringing the policy rate to 6 per cent for the rest of the year. We forecast USD-INR to end the year at 86.”

Indian economy and financial markets will remain supported by strong domestic demand, aided by factors such as favourable demographics, digitalisation and rising middle class consumption to limit downside risks to growth, Cheo said.

“We expect India’s growth to bounce higher after the recent disappointment and continue to estimate India’s long-term growth potential to hover around 6.5 per cent, which should help India become the third-largest economy by 2029. We remain bullish on Indian growth and financial assets,” Cheo added.