The US Federal Reserve’s decision to hit the pause button on Wednesday has put the spotlight on the Reserve Bank of India, which is widely expected to cut rates next week for the first time since May 2020.
RBI governor Sanjay Malhotra’s first rate meet also comes in the backdrop of US Fed chief Jerome Powell indicating he is not in a rush to cut interest rates as the US central bank is set for a potential clash with US President Donald Trump who is insisting on a faster pace of reductions in borrowing costs.
The European Central Bank on Thursday cut its key interest rate on Thursday by 25 basis points, a step to boost an economy.
RBI’s monetary policy committee (MPC) will announce its decision on the repo rate on February 7.
Amid a slowdown in growth and moderating inflation, India’s central bank is projected to start the process of a shallow interest rate reduction though some experts feel it will continue to hold rates, with a relaxation only in April.
The stock markets, however, ended on a positive note for the third consecutive session with the Sensex up nearly 227 points in volatile trade.
Analysts said the markets have factored in a pause by the Fed and hawkish comments by Powell; all attention will immediately be on the budget on Saturday.
Dhiraj Relli, MD & CEO of HDFC Securities, said this
was the first key step from the Fed under Trump’s second term and comes after the latter said he should have some say in rate policy.
Relli said that Trump’s focus on immediate economic indicators and the stock market clashed with Powell’s perspective on inflation control. “This strained relationship undermines public trust in
the Fed’s independence, a crucial element of its effectiveness.
“This visible disagreement demonstrated the challenges of balancing political pressures with the central bank’s mandate for economic stability. Fed officials must now determine whether Thursday’s expected pause is a one-meeting hold or the start of a longer stretch,’’ he said.
According to Akshay Chinchalkar, head of research, Axis Securities, a resilient labour market in the US and a steadily growing economy give the central bank ample elbow room to assess incoming data as it comes.
He said the first rate cut of the year is not priced in before June with a total of two cuts aggregating 50 basis points expected for the full year.
The Sensex opened higher at 76598.84 and initially declined to the day’s low of 76401.13. During the day, it surged 429.92 points to 76962.88 and later ended at 76759.81 — a gain of 226.85 points. At the NSE, the Nifty advanced by 86.40 points to 23249.50.
From the 30-share blue-chip pack, Bharti Airtel, Power Grid and Bajaj Finance were the biggest gainers.