After FM Nirmala Sitharaman’s income tax relief in Budget 2025, will RBI also cheer the middle class with a rate cut? | Stock Market News

With Budget 2025 behind us, the focus now shifts to the next market trigger—the Reserve Bank of India’s Monetary Policy Committee (MPC) meeting, scheduled for February 5-7.

The Union Budget 2024 offered a big relief to the Indian middle class by tweaking tax rates. Finance Minister Nirmala Sitharaman announced making income up to ₹12 lakh tax-free from ₹7 lakh earlier.

“Under the proposed 2025 tax regime, a person earning ₹25 lakh annually will pay ₹3.43 lakh in total tax, compared to ₹4.57 lakh under the 2024 regime. This translates to 5% more money in hand and a monthly saving of around ₹9,500 — a substantial relief for taxpayers,” said Adhil Shetty, CEO, Bankbazaar.com.

Experts say the FM’s move is expected to boost consumption and contribute to economic growth significantly.

“The provision of personal income tax relief for individuals earning up to ₹24 lakh per annum is expected to stimulate consumption, particularly in the discretionary spending segments of the middle and upper-middle-income groups,” said Pradeep Gupta, Co-founder & Vice-chairman, Anand Rathi Group.

Eyes on the RBI MPC now

A rate cut by the RBI will lower borrowing costs, reducing the EMI burden on the middle class.

Expectations are rife that the central bank will go for a 25 bps rate cut on February 7, noting the evolving trends of economic growth and inflation.

Macro indicators indicate easing food inflation which has been a matter of serious concern for the RBI. On the other hand, economic growth is losing steam.

The Economic Survey 2025 stated that inflation will gradually come down to the 4 per cent mark despite global uncertainty. It also expects economic growth to remain stable but underscores the importance of government agencies in ensuring growth maintains its momentum. 

Rahul Bajoria, India and ASEAN Economist, BofAS India, believe growth and inflation data both point towards the need to ease monetary conditions.

Bajoria expects the RBI to cut the Repo rate by 25bp to 6.25 per cent in the February MPC, potentially in a unanimous decision, and take steps to inject durable liquidity, by considering another reduction in CRR of 50bp, or substantial bond purchases through open market operations.

He believes this can help prevent spikes in short end rates, amid ongoing intervention in the foreign exchange market.

“Given our growth and inflation projections, we expect the RBI to prioritise growth as supply shocks fade. We maintain our view that the RBI could cut rates by 100bp in the cycle, given a durable alignment of headline CPI close to 4 per cent through 2025. This will bring the repo rate to 5.50 per cent by end-2025, which we identify as being close to the neutral rate,” said Bajoria.

Garima Kapoor, Elara Securities’ economist, expects the MPC to cut the policy repo rate by 25bps in February.

“We retain our view of a 25 bps rate cut in February and a 75 bps cut in the current rate cut cycle. However, risks remain to our outlook from the external front,” said Kapoor.

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