Repo Rate: The Reserve Bank of India (RBI) is anticipated to keep its policy rate unchanged at its upcoming meeting next week, following a notable slowdown in GDP growth during the second quarter of FY2025. Nonetheless, a report from HDFC Bank suggests that the likelihood of a rate cut in February has risen.
The repo rate will remain unchanged
The country's GDP growth decelerated to 5.4 percent year-on-year in the second quarter of FY25, down from 6.7 percent in the first quarter. Similarly, gross value added (GVA) growth slowed to 5.6 percent in the second quarter, compared to 6.8 percent in the previous quarter, indicating a broader economic slowdown. It stated, 'We anticipate the RBI will keep the current policy rate unchanged in its meeting next week, although the likelihood of a rate cut in February has increased following the lower-than-expected GDP figures.'
Indications of reduced demand
The report indicated signs of weakness in demand. Consumption growth decelerated, particularly due to weak urban demand, as reflected in high-frequency indicators. Leveraged consumption also declined, with slower growth in unsecured retail loans, such as personal loans and credit cards. Additionally, overall investment growth slowed down, as government capital expenditure was lower than last year and private investment remained subdued. The optimism is driven by strong agricultural performance, payments under government schemes, and increased government spending, which could stimulate economic activity.
The policy repo rate has been adjusted to 6.5% for the tenth time
It stated that robust agricultural performance and enhanced rural demand, fueled by increased government expenditure and payments for government schemes, are anticipated to stimulate economic activity in the year's latter half. According to the report, lower-than-expected GDP figures have heightened the likelihood of an interest rate reduction in February. The report also mentioned that currently, the RBI is likely to maintain a wait-and-watch approach, implying no changes to the existing policy rate in the next meeting.
(Input From ANI)