The RBI may buttress the monetary policy committee’s likely decision of a 25 basis points repo rate cut with liquidity infusion measures, including announcement of a calendar of open market operation (OMO) purchase of Government Securities (G-Secs), say market experts. This will ensure better transmission of the cut into lending and deposit rates.
RBI Governor Sanjay Malhotra will announce the decision of the six-member MPC on the repo rate, which has been static since it was last upped by 25 bps in February 2023 from 6.25 per cent to 6.50 per cent, on Friday.
While a conventional 25bps rate cut in the upcoming MPC policy is less of a market debate, the actions around ‘what beyond a cut’ will be more watched, Emkay Global Financial Services’ Chief Economist Madhavi Arora, and Research Associate Harshal Patel.
“Easing by stealth via unconventional policy tools like liquidity and regulatory measures will continue. The RBI may also want to address the stress in the non-sovereign money market.
“We expect another round of ₹30,000 crore OMOs, implying ₹90,000 crore plus in total in FY25….We will also watch for additional capital account easing actions via the FCNR (deposit) route,” they said.
V Rama Chandra Reddy, Head-Treasury, Karur Vysya Bank, observed that the market has already factored in a 25bps cut in the repo rate. To bolster effectiveness of the cut, there could be additional liquidity infusion measures.
“By March-end, even durable liquidity will be in deficit. So, there can be an announcement relating to further OMO purchase of G-Secs for the next two-three months to inject liquidity. A statement in this regard or a calendar is required for the market. Further, RBI could announce more USD/INR buy/sell swaps,” he said.
Kaushik Das, Chief Economist – India, Malaysia and South Asia, Deutsche Bank AG, expects the RBI to cut policy rate by 25bps each in February and April monetary policy, bringing the repo rate down to 6 per cent in 1H’25. He emphasised that the sooner the rate cuts are delivered, the lesser will be the growth sacrifice.
“In addition to rate cuts, simultaneous liquidity easing measures (more OMO purchases and long-term USD buy/sell swaps are needed) will be critical to support economic activity. In this cycle, eventually, we expect the RBI to drive the short-term rates to the SDF (standing deposit facility) corridor, which will likely result in an effective easing of 75bps,” he said.
