RBI tipped to cut repo rate by 25bps tomorrow
What's the story
Sanjay Malhotra, the newly appointed Governor of the Reserve Bank of India (RBI), is likely to cut interest rates in his first policy meeting tomorrow.
The move marks a shift toward boosting economic growth in the face of rising global risks.
Economists expect at least a 25 basis points cut in the benchmark repurchase rate in light of global trade tensions and recent economic slowdown.
Policy shift
Malhotra's approach differs from predecessor Das
Malhotra, who took office in mid-December, is likely to take a softer stance than his predecessor Shaktikanta Das.
Das had kept interest rates unchanged for two years while targeting 4% inflation.
Most economists surveyed by Bloomberg expect the RBI to now cut the benchmark repo rate by at least 25 basis points to 6.25%.
Committee changes
Leading the revamped monetary policy committee
Malhotra is heading a mostly new six-member monetary policy committee (MPC).
Deputy Governor M. Rajeshwar Rao has been inducted into the MPC on a temporary basis to fill in for Michael Patra, who retired last month.
Meanwhile, three external members joined the MPC in October.
Although he has not delivered any public speeches since his appointment, insiders say Malhotra prefers a more relaxed approach on the Rupee than Das.
External factors
Economic slowdown and global trade tensions influence policy
The decision to slash interest rates comes amid data indicating a sharper-than-expected economic slowdown.
Further, new tariff threats by US President Donald Trump are sending shockwaves across global markets.
"Ultimately, monetary policy will have to do the heavy lifting to support growth in 2025 and beyond," said Kaushik Das, Chief Economist for India at Deutsche Bank AG.
Analyst expectations
Malhotra's policy statement and press conference will be closely watched
Analysts are keenly awaiting Malhotra's policy statement and subsequent press conference for indications of his commitment to reducing inflation to the 4% target.
They're also interested in any hints about the duration and depth of any potential easing cycle.
While some economists believe that the RBI will pivot this week, others predict it could be extended if global financial conditions don't worsen significantly.
Policy outlook
Rate cut could signal change in RBI's policy stance
A rate cut could also signal a change in the RBI's policy stance to "accommodative" from "neutral," Aastha Gudwani, India Chief Economist at Barclays Plc said.
The RBI had changed the stance to neutral in its October policy meeting.
Malhotra's comments on the INR will be closely watched for signs he's more amenable to allow it to trade more freely.