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RBI cut the benchmark Repo rate as per market expectation citing declining inflation and below trend GDP growth.

ICICIdirect Research 07 Feb 2025 DISCLAIMER

RBI cut the benchmark Repo rate as per market expectation citing declining inflation and below trend GDP growth.

RBI cited declining inflation (4.2% in FY26 versus 4.8% in FY25) and below trend GDP growth (only marginal improvement in FY26 at 6.7% versus 6.4% in FY25).

Growth revised down by 20-30bps

RBI remain largely silent on the implication of its rate decision on currency movement while announcing the rate decision. However, RBI did not announce any further liquidity measures and maintained its liquidity stance at “Neutral” as against market expectation of shifting to “accommodative”. This no further liquidity measures seems to impact both equity and debt market negatively as initial reaction (10-Year yield is up 4bps).

For lenders, strong corporate pipeline, continued traction in retail segment boosted by cut in tax rates is seen to aid credit growth ahead.

However, liquidity constraint is seen to keep margin volatile. NBFCs, on the other hand, are expected to witness benefit of rate cut flowing into margins, especially for lenders having substantial fixed loan book (eg: CV financiers).

Governor’s indication of relaxation in implementation of LCR norms (not to be implemented before March 2026) remains a much-needed breather for banks in the current environment with liquidity and liabilities accretion at competitive cost remaining a challenge. However, a formal announcement on the same would be awaited.

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