The Reserve Bank of India (RBI) is set to hold its Monetary Policy Committee (MPC) meeting in February, and financial experts anticipate some positive developments. According to global brokerage firm Jefferies, the central bank might adopt a growth-supportive stance, especially as the government is expected to take a strict fiscal approach in its budget announcement on February 1.
RBI’s Liquidity Boost Signals Positive Outlook
The RBI recently announced plans to inject ₹1.5 lakh crore into the banking system by the end of February. This move aims to provide more liquidity, which is a positive sign for economic growth. If the RBI continues with a supportive stance, businesses and banks may benefit from improved lending conditions.
Impact on the Rupee and Market Expectations
Jefferies noted that if the RBI takes a dovish stance on liquidity or interest rates, the Indian rupee might depreciate further. However, the brokerage firm also highlighted that concerns over government spending cuts have already been factored into stock market corrections. The government’s focus on fiscal discipline may limit excessive spending, but economic growth is expected to pick up in the coming months.
Economic Growth Outlook and Government Policies
Despite concerns about a slowdown, Jefferies believes the situation is temporary. Economic activity is likely to improve in the March quarter as government spending increases. A potential easing of liquidity conditions and regulatory measures could further boost growth in the coming months.
There are rising demands for higher expenditure on social welfare schemes, and there is speculation about a possible hike in corporate taxes. However, if these changes do not take place, markets may respond positively.
Recent Policy Decisions and Their Impact
In its last monetary policy review in December, the RBI cut the Cash Reserve Ratio (CRR) from 4.5% to 4%, releasing ₹1.16 lakh crore into the banking system. This was the first CRR cut since March 2020, aimed at lowering interest rates and boosting lending.
Additionally, the RBI recently announced another liquidity injection of ₹1.10 lakh crore through open market operations and a $5 billion dollar-rupee swap auction. These steps are expected to make more funds available for lending and support economic recovery amid global uncertainties.