Thu Feb 06 15:20:00 UTC 2025: ## RBI Faces Tough Choices in First 2025 Policy Review

**Mumbai, February 6, 2025** – The Reserve Bank of India (RBI) is poised for its first monetary policy review of 2025 on Friday, facing a significantly altered landscape compared to its December meeting. The central bank has a new governor, Sanjay Malhotra, replacing Shaktikanta Das, and is also without a deputy governor in charge of monetary policy following Michael Patra’s retirement. This leadership transition complicates the upcoming review.

Adding to the complexity is the rupee’s sharp decline against the US dollar, falling from 85 to over 87 in just two months. This weakening is partly attributed to the strengthening dollar driven by US President Donald Trump’s protectionist economic policies.

Despite the challenges, pressure mounts on the RBI to cut interest rates. Industry and government officials cite slowing economic growth, with 2024-25 GDP growth revised down to 6.4%. The Finance Ministry partially blames tight monetary policy for a slump in urban demand, a claim countered by the RBI in its January bulletin. The bulletin suggests boosting consumption through higher disposable incomes as a path to economic recovery. Recent income tax cuts in the Budget have shifted the onus back to the RBI.

Inflation remains above the RBI’s 4% target, averaging over 5% in the past five months, although it may have eased in January. However, a rate cut risks further weakening the rupee and increasing imported inflation. The new governor faces a difficult decision, potentially mirroring the surprise rate cut implemented by his predecessor in 2019.

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