Mumbai, Feb 3 (PTI) The RBI is likely to reduce the key interest rate by 25 basis points this week after keeping it on hold for two years, complementing the Union Budget initiatives to push consumption-led demand, though the sliding rupee continues to be a concern.

As the retail inflation has remained within the Reserve Bank's comfort zone (less than 6 per cent) for most of the year, the central bank can take rate action to boost growth hit by sluggish consumption, opined experts.

The Reserve Bank of India (RBI) has kept the repo rate (short-term lending rate) unchanged at 6.5 per cent since February 2023. The last time the RBI had reduced the rate was during the Covid times (May 2020) and thereafter, it was gradually raised to 6.5 per cent.

Newly appointed Reserve Bank Governor Sanjay Malhotra will be chairing his first Monetary Policy Committee (MPC) meeting starting Wednesday.

The decision of the six-member panel will be announced on Friday (February 7).

"There is a higher probability of a rate cut this time for two reasons. First, the RBI has already announced liquidity enhancement measures, which have improved conditions in the market. This appeared to be a prerequisite for cutting rates," said Madan Sabnavis, Chief Economist, Bank of Baroda.

Sabnavis further said the Union Budget has provided a boost and it may be appropriate to lower the repo rate in tandem to support the same.

The Reserve Bank has announced measures to infuse Rs 1.5 lakh crore worth of liquidity in the banking system on January 27.

"We can expect some changes in the forecast on growth in particular as the NSO had projected 6.4 per cent for the year. It would be interesting to see if the RBI would provide a forecast for growth in FY26, though this normally is published in the April policy," he added.

Aditi Nayar, Chief Economist and Head -- Research and Outreach at Icra, opined that the growth inflation dynamics have improved since the December 2025 policy meeting.

"We don’t assess the fiscal stimulus provided by the Union Budget to have a significant bearing on inflation. Accordingly, we think the balance is tilted in favour of a rate cut in the February 2025 policy review," she said.

However, if global factors cause a further material weakening in the INR/USD cross rate over the course of this week, then the anticipated rate cut may get delayed to April 2025, Nayar added.

On Monday, the rupee plunged 55 paise to close at an all-time low of 87.17 (provisional) against the US dollar.

The Union Budget presented in Parliament on Saturday has announced major income tax concessions to spur consumption especially for the middle class with a view to boost demand. PTI NKD CS NKD BAL BAL SHW