SBI Research Predicts 0.25% Rate Cut by RBI in Upcoming Policy Announcement
State Bank of India (SBI) economists anticipate a 0.25% rate cut in the Reserve Bank of India’s (RBI) monetary policy announcement scheduled for February 7, 2025. This expected rate cut is primarily driven by the fiscal stimulus outlined in Budget 2025-26 and provides the RBI room for adjustment, particularly in the short term, according to an SBI Research report released on Tuesday.
New Delhi: State Bank of India (SBI) economists anticipate a 0.25% rate cut in the Reserve Bank of India’s (RBI) monetary policy announcement scheduled for February 7, 2025. This expected rate cut is primarily driven by the fiscal stimulus outlined in Budget 2025-26 and provides the RBI room for adjustment, particularly in the short term, according to an SBI Research report released on Tuesday.
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Possible Cumulative Rate Cuts and Future Projections
The SBI Research report also forecasts a cumulative rate cut of at least 0.75% over the upcoming months. This is expected to occur through two successive rate cuts in February and April 2025, with a potential break in June 2025. The second round of cuts may then start in October 2025.
Factors Supporting Rate Cuts
The report highlights that the current pause by the US Federal Reserve gives the RBI the opportunity to assess inflationary expectations, ensuring they are fully anchored before making further policy adjustments. This, combined with the fiscal stimulus from the Union Budget, positions the RBI to support the economy without undermining inflation targets.
Liquidity and Economic Outlook
SBI’s analysis further emphasizes the importance of revisiting the RBI’s Liquidity Framework to prevent tight liquidity from negatively impacting credit flow within the economy. The current liquidity deficit, as of January 31, 2025, stood at Rs 1.96 lakh crore, with the Government of India’s average cash balance reaching Rs 2.1 lakh crore during the same period.
According to the report, RBI’s recent liquidity interventions are expected to bring system liquidity to a surplus of Rs 1 lakh crore by the end of FY25, with durable liquidity projected at Rs 0.6 lakh crore.
Global Economic Outlook and Its Impact on India
Despite global uncertainties, the global economy is expected to grow by 3.2-3.3% in 2025. Global inflation is softening, and central banks are likely to approach their inflation targets at varying speeds across different regions. Trade wars, particularly the tariff decisions of the new US administration, could impact global GDP growth by 30-50 basis points, with regional effects depending on the economic structure of each area.
India’s Economic Landscape and Fiscal Consolidation
Against this global backdrop, India is entering the fourth quarter of the financial year under the shadow of the Union Budget 2025-26, which includes fiscal stimulus to support consumption and fiscal consolidation. The Centre’s market borrowings for FY26 are estimated at Rs 11.5 lakh crore, and SBI believes the financing of the fiscal deficit will remain manageable. The report also estimates that around 75% of this financing will be completed through long-term instruments.
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Credit Growth and Banking System Outlook
While credit growth has shown a moderate trend amid a sequential slowdown, the overall liquidity position in the banking system is expected to remain robust. SBI estimates that system liquidity will stay surplus by Rs 1 lakh crore, supporting economic stability in FY25.
