Davos 2025: Expect 25 bps cut in February monetary policy meet, says SBI Chairman C S Setty

C S Setty, State Bank of India Chairman, said the Reserve Bank of India (RBI) could initiate a rate-cut cycle at its upcoming monetary policy review in February 2025, following a leadership change at the central bank and a slowdown in growth momentum.

Setty mentioned that the State Bank of India is anticipating a total repo rate cut of 50 to 75 basis points throughout the calendar year 2025.

"Our house view is that the February rate cut will be smaller in size more in terms signalling that the central bank is open for this. In the calendar year 2025, 50 to 75 basis points rate cut with 25 bps rate cut in February," Setty said at a session with Business Today at Davos 2025. 

The central bank kept the policy rate unchanged at 6.50% in its bi-monthly monetary policy review meeting in December for the 11th time in a row. Many experts have been anticipating a rate reduction during the upcoming meeting of the RBI's monetary policy committee, chaired by the RBI Governor, on February 5-7 in a bid to prioritise injecting liquidity into the banking system.

The repo rate, set by the Reserve Bank of India (RBI), is the interest rate at which the central bank lends money to commercial banks. This rate is a crucial tool employed by the RBI to manage inflation levels.

Talking about the Rupee slide, Setty said: "If you see from April 2021 onwards, Rupee movement was closely linked to the dollar index. As the dollar strengthened, the Rupee depreciated. It is different from the global financial crisis that we have witnessed before. Around 2014, the Dollar index moved 3-4%, whereas Rupee depreciated around 45%. Among the emerging nations' currencies, Rupee has done fairly well."

On the slowdown in the economy, Setty said: "This is a temporary phase what we are witnessing. Structurally, India is in a good position, a good story to continue. However, there are certain challenges in this regard. Like, capital investment in steel and cement is not happening as much as we were expecting. Because these sectors have raised capacity utilisation by 75%. They are all looking at the external factors, particularly on the steel side. But in contrast, investments are happening in renewables, roads, and others. But core investment is critical for us. Hopefully, the Budget will give us some spur."

On the health of the banking system, Setty added: "There is a strong footing. There is a recent financial report that places banking system in a robust position particularly by the stress tests and all. The capital buffers are sufficient. There are two things. One is of course, the banking system has strengthened the balance sheets. More importantly, we have strengthened the underwriting processes, we have adopted technology, we are trying to reduce operating costs as much."