RBI expected to cut interest rates for first time in nearly five years

economictimes.indiatimes.com:

RBI) is expected to cut interest rates for the first time in nearly five years this Friday on waning concerns about stubborn inflation, economists and investors polled by ET said, as Mint Road's priority changes to helping a visibly slowing economy accelerate.

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Nine of the 12 financial institutions polled believe the new-look Monetary Policy Committee (MPC), which will meet for the first time after new Governor Sanjay Malhotra took over in December, will vote to reduce the repo rate, or the rate at which the RBI lends to banks, by 25 basis points to 6.25%. Additionally, Saturday's budget will also increase the MPC's comfort with the government proposing a fiscal deficit of 4.4% of GDP in FY26 compared with a better-than-budgeted 4.8% in FY25.

One basis point is a hundredth of a percentage point. This would be the first reduction since May 2020, when rates were slashed to cushion the impact of Covid-19.

“Revenue expenditure in proportion to GDP was reduced to 11% from 11.4% and this is fiscally prudent,” said Gaura Sengupta, chief economist at IDFC First Bank. “So from an MPC perspective, the deficit numbers won't have a bearing,” she said.

“This would be a good time to cut rates as inflation has eased and is expected to ease,’’ said Abhishek Upadhyay, senior economist, fixed