Rate cut is around the corner, RBI's easing cycle to begin in February: Crisil

Among the conditions that have been a drag on the economy, Crisil listed deficit liquidity, higher money market rates and weaker rupee.

A policy rate cut is around the corner and the central bank's easing cycle is expected to begin in February, Crisil has said in its latest note on macroeconomics.

The note from the team led by Dharmakirti Joshi, the Chief Economist at Crisil, said that the food inflation is likely to ease, global environment is supportive of rate cutting and that India's slowing growth rate has increased calls for a cut.

The note said, "Food inflation, the main roadblock for rate cuts, is expected to ease given healthy agricultural production."

Though monetary easing is underway in several key economies, there still remains some uncertainty around the extent of the rate cuts, added the note.

Also read: Don’t see the need for rate cut as yet in India: Hitendra Dave, CEO, HSBC India

It said, "Trump’s victory brings with it expectations of tariffs increasing inflationary pressures and tax cuts adding to fiscal stress in the US. Due to these factors, S&P Global sees fewer rate cuts by the Federal Reserve in 2025 than its previous projections."

But, overall, "the global environment remains supportive for rate cuts". In December, the US Fed cut the funds rate 25 bps to 4.25 percent-4.5 percent.

On the domestic front, the analysts noted that the slowing growth in recent quarters had raised calls for rate cuts by the central bank.

The National Statistical Office’s first advance estimate predicts a sharp growth slowdown to 6.4 percent this fiscal after high 8.2 percent growth in the previous one, weighed down by high interest rates and low fiscal impulse.

"All-in-all, we expect the rate cut is just around the corner," the team wrote.

Marginal improvement

Meanwhile, domestic financial conditions have improved marginally month-on-month in December, wrote the Crisil team. The CRISIL Financial Conditions Index (FCI), an indicator capturing parameters from India’s major financial market segments, rose to 0.5 from 0.4 in November.

"Foreign portfolio investors (FPI) returned to Indian markets in the first half of the month as US treasury yields cooled. This buoyed equities and supported softer domestic yields.
"Falling crude prices augured well for inflows into oil importing economies such as India. But a rapidly strengthening dollar, put pressure on the rupee and it high a fresh low against the dollar."

Among the conditions that have been a drag on the economy, Crisil listed deficit liquidity, higher money market rates and weaker rupee.