New Delhi [India], December 5 (ANI): The Reserve Bank of India (RBI) may keep the current policy rates unchanged in the ongoing Monetary Policy Committee (MPC) meeting, according to a report by the Union Bank of India.
As per the report, RBI is unlikely to announce a cash reserve ratio (CRR) cut to improve liquidity. A CRR cut is viewed as a strong policy signal that might indicate inflation is under control and growth concerns are severe.
The report predicts that the first rate cut of 25 basis points (bps) might take place in February 2025, followed by another cut in April 2025.
The report also noted that instead of a rate cut the central bank may explore other liquidity tools such as open market operations (OMOs) and foreign exchange (FX) swaps to manage liquidity in the market for balancing the inflation and growth.
It said “we do expect the RBI to announce use of permanent liquidity tools apart from fine-tuning operations. Core liquidity is likely to switch into sustained deficit at least by Q4 FY25 unless FX outflows measures (totalling more than USD 25bn in last two months) reverse”.
However, the report also mentioned that the RBI rate cut timeline may shift if global market volatility continues after Donald Trump assumes office as US President on January 20, 2025.
The report pointed out that the MPC faces a challenging situation with recent GDP data for the second quarter of FY25 revealing a sharp slowdown in economic growth, coming in significantly below the MPC’s estimates of 7 per cent.
At the same time, inflation remains above the upper limit of the RBI’s target range of 4 per cent (+/-2 per cent) as of October 2024. Adding to these challenges are sharp foreign exchange losses, driven by heightened global market volatility.
The report also highlighted the growing liquidity deficit in the financial system. Core liquidity is expected to remain in deficit by the fourth quarter of FY25 unless foreign exchange outflows, which have exceeded $25 billion over the past two months, reverse.
Overall, while growth recovery is anticipated in the latter half of FY25, the RBI’s immediate challenge is to balance weak growth, elevated inflation, and external volatility while ensuring adequate liquidity in the system. (ANI)
This report is auto-generated from ANI news service. ThePrint holds no responsibility for its content.