Mumbai, Jan 29: The RBI’s monetary policy committee meeting scheduled for February is likely to spring some positive surprises with a growth-favoured approach, according to brokerage firm Jefferies.
Reserve Bank of India (RBI) policies can take a growth-supportive turn, especially with the government expected to take a tight fiscal stance on February 1, Jefferies said in a note.
The recent move by the central bank to provide liquidity is a positive indicator, the report said. It was referring to the RBI’s announcement this week that it would inject Rs 1.5 lakh crore liquidity into the banking system in the coming weeks till the end of February.
If the RBI Governor Sanjay Malhotra-led committee takes a potentially dovish stance on liquidity or rates, the rupee may depreciate further, Jefferies observed in its note.
"Our cautious view on the budget is predicated on an expected slowdown in government capex." But the stock corrections largely build in those worries, it said. A high base in revenues and the government's firmness on fiscal consolidation will likely limit any significant spending growth, Jefferies said.
On the slowdown in economic growth, most of the reasons are temporary. The March quarter should be better with the significant underspending in eight months of fiscal 2025 expected to reverse from November 2024 to March 2025, the brokerage said.
Further, a potential improvement in liquidity and regulations can prompt some uptick in the months ahead, it added.
The pressures to increase expenditure on social welfare schemes are rising and there are some expectations of a hike in corporate taxes. If neither were to happen, the market may be relieved, Jeffries said.
The RBI had, in its monetary policy review on December 6, slashed the cash reserve ratio (CRR) for banks by 0.5 per cent to make more funds available for lending to spur economic growth but kept the key policy repo rate unchanged at 6.5 per cent with an eye on inflation.
The CRR was reduced from 4.5 per cent to 4 per cent. This was the first time since March 2020 that the CRR has been cut. The CRR is the proportion of deposits that banks have to set aside as idle cash in the system.
The CRR cut infused Rs 1.16 lakh crore into the banking system and was aimed to bring down market interest rates to spur growth.
The RBI on Monday announced that it would inject another Rs 1.10 lakh crore liquidity in the banking system through open market purchase auctions of Government securities and carrying out a variable rate repo auction. Besides, a $5 billion dollar-rupee swap auction would also be held to provide more liquidity in the system. These measures are aimed at making more funds available to banks for giving out loans and bringing down the interest rate as part of the measures to spur growth in an economy that has been slowing economy amid geopolitical uncertainties.
