RBI Feb MPC meet: GDP numbers to be key to watch

Reserve Bank of India

After the sluggish growth in the second quarter of the current financial year and lower first advance estimate, the projections of gross domestic product (GDP) growth by the Reserve Bank of India (RBI) has become a key factor to be watch out for in the upcoming monetary policy.

The numbers are also important because in the December 2024 monetary policy, the RBI had revised GDP numbers downwards for the current financial year and first quarter of next financial year. RBI on December 6 cut its GDP growth forecast to 6.6 percent for current fiscal year, from 7.2 percent earlier.  The central bank also revised its estimate for Q3FY25 to 6.8 percent from 7.4 percent earlier and Q4FY25 to 7.2 percent from 7.4 percent. For Q1FY26, the central bank revised its GDP projection to 6.9 percent from the earlier 7.3 percent and to 7.3 percent for the September quarter of FY26.

According to the Economic Survey 2025, India’s real GDP is estimated to grow by 6.4 per cent in FY25. This was 20 bps lower than the projections by the RBI in December monetary policy.

Economic Survey 2025 also showed that India’s real GDP growth will likely grow at 6.3-6.8 per cent in 2025-26, signaling moderate prospects buffeted by multiple headwinds, including a looming global trade war and artificial intelligence (AI)-induced disruptions.

The Survey notified a watch out notice on impending consequences from rising global protectionism and resultant global supply chain disorders that could erode export India’s competitiveness besides fanning inflation.

The restrained growth projection underscores the challenges facing the Indian economy as it navigates a complex domestic and global landscape. Private investment has been sluggish and foreign portfolio and direct investment to India has moderated in 2024-25.

Post-December monetary policy, a lot of financial metrics has changed along with the change in governor, inflation trajectory, and liquidity conditions in the banking system.

This has led to market wide speculations of rate cut of 25 basis points (bps) by the central bank in February monetary policy.

On February 3, a Moneycontrol poll of economists and treasury heads across banks and market experts, hint that a brand new Monetary Policy Committee that will meet from February 5- 7, led by Sanjay Malhotra, the new governor, Reserve Bank of India may hand out a rate cut in the upcoming Monetary Policy of Reserve Bank of India.

Being the first MPC meet under Malhotra, the expectation is that the repo rate cut or the benchmark lending rate fixed by the RBI could be reduced by 25 basis points (bps) from 6.5 percent to 6.25 percent in the upcoming MPC. The MPC will announce its decision on repo rate on February 7.