NEW DELHI: While a 25bps rate cut in the upcoming RBI MPC policy is less of a market debate, the actions around “what beyond a cut” will be more watched, a report said on Thursday.
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, according to a report by Emkay Global Financial Services.
“We expect another round of Rs 300 billion Open Market Operations (OMOs), implying Rs 900 billion+ in total in FY25E. A CRR cut is a close call, but a temporary cut may not address the underlying banking stress, ” the report mentioned.
Easing in ensuing tighter Liquidity Coverage Ratio (LCR) norms (April 2025 onwards) and lending standards might be a preferred policy tool. We will also watch for additional capital account easing actions via the FCNR route.
According to the report, “noisy food inflation” drove a large part of the headline inflation in FY25, while demand slack continued to keep core subdued.
However, near-term food pressures look to be abating with broad-based easing across food categories, and January inflation tracking sub-4.5 per cent (December 5.2 per cent).
“Q4FY25E headline inflation is likely to ease to 4.4 per cent vs 5.6 per cent in Q3FY25, supported by strong Kharif output, ” the report noted.
For FY26 as well, inflation on an average will ease to 4.5 per cent vs 4.8 per cent-4.9 per cent in FY25.
Recent RBI measures since December were a beginning of easing by stealth, and “we think that this route will continue ahead”.
Normalising CRR to 4.0 per cent (adding over Rs 1 trillion liquidity) in December was the first of the liquidity infusion steps, followed by a slew of measures in January 25 (adding Rs 1.5 trillion liquidity).