RBI MPC Reaction: Deepak Ramaraju, Senior Fund Manager, Shriram AMC

7 Feb 2025 , 01:30 PM

The RBI cut the repo rate by 25 bps. This was a welcome move given the slowdown in the economy and has been timed appropriately. India’s GDP is expected to grow at 6.3% to 6.6% for FY 26 and the monetary policy committee expects the inflation to moderate to 4.26% for FY 26. Given the weakness in Rupee against the USD Dollar and the uncertainty of tariff by the US government, RBI might delay future rate cuts. RBI will be watchful on the incoming inflation data and the currency movement before taking future rate cuts. As per our expectation, April could be status quo of the interest rates.

As the government cut the taxes for the middle class and now RBI bringing down the cost of borrowing, it augurs well for a strong consumption-led growth. Discretionary spending and premiumization themes are expected to outperform. Sectors like automotive, real estate, and discretionary segments such as jewellery, durables and white goods might do relatively better. Travel and tourism, quick service restaurants could also see the demand remaining buoyant. As the demand grows, the cut in interest rates could be positive for private capex as well. This might reduce the burden of the government from the heavy lifting of capital expenditure. Overall, tax cuts and the lower cost of interest are the key ingredients for the stronger and structural growth in the years to come