RBI's MPC likely to cut repo rate by 25 bps on February 7: Bank of Baroda report

The monetary policy review follows closely on the heels of the Union Budget, where the government slashed personal tax rates to boost spending and spur growth.

The Reserve Bank of India is set to undertake a 25 basis points cut in repo rate in the upcoming monetary policy announcement scheduled for February 7, Bank of Baroda said in a report.

The central bank was able to consider a rate cut as inflation, which is the main focus of the monetary policy, has been showing “signs of moderation”, the report suggested.

“Balancing and counterbalancing all macro and geopolitical factors, we believe there remains space for 25 bps rate cut by RBI in the upcoming policy," the lender’s report said.

Reuters, in its survey, too found that overwhelming number of economists expect the central bank to reduce the repo rate, a first in almost 5 years. This will also be newly appointed governor Sanjay Malhotra’s first monetary policy meeting.

The monetary policy review follows closely on the heels of the Union Budget, where the government slashed personal tax rates to boost spending and spur growth.

"With the finance ministry still keeping the overall fiscal deficit in check, there is scope for the RBI to do more to boost the economy," said Shilan Shah, deputy chief emerging markets economist at Capital Economics.

The government said it is likely to post a full-year fiscal deficit of 4.8% of GDP in the current year ending March and expects to improve its finances, targeting a fiscal deficit of 4.4% in 2025-26.

The Indian economy is seen expanding by 6.3%-6.8% in the coming fiscal year after likely growing 6.4% this year, its weakest in four years and sharply below the 8.2% pace in fiscal 2024.