RBI Governor Sanjay Malhotra during a press conference after announcement of the first bi-monthly monetary policy of the current fiscal year, in Mumbai on Wednesday,
| Photo Credit:
PTI
Benign inflation and a moderate growth outlook prompted the Reserve Bank of India’s rate-setting panel to usher in a dovish monetary policy. The panel voted unanimously to cut the policy repo rate by 25 basis points (bps) and change the monetary policy stance from “neutral” to “accommodative”. Both these decisions were widely anticipated by the market players.
The reduction in the repo rate, which is the interest rate at which Banks borrow funds from the RBI to overcome short-term liquidity mismatches, from 6.25 per cent to 6.00 per cent, is expected to support growth, which could face headwinds due to the escalating global tariff war.
The latest rate cut, which follows a 25 bps cut in February 2025, comes in the backdrop of the latest retail inflation reading dipping below the monetary policy committee’s (MPC) 4 per cent target.
On the rationale for the rate cut, Governor Sanjay Malhotra emphasised that there is a decisive improvement in the inflation outlook. Further, there is now a greater confidence of a durable alignment of headline inflation with the 4 per cent target over a 12-month horizon.
On the other hand, impeded by a challenging global environment, growth is still on a recovery path after an underwhelming performance in the first half of FY25. In such challenging global economic conditions, the benign inflation outlook and moderate growth demand that the MPC continues to support growth, Malhotra said.
The RBI also pared the real GDP and retail inflation projections for FY26 to 6.5 per cent (earlier projection: 6.7 per cent) and 4 per cent (4.2 per cent), respectively.
Malhotra observed that the change in the monetary policy stance signals the intended direction of the policy rates, going forward.
Accordingly, with respect to the policy rate, the change in stance from ‘neutral’ to ‘accommodative’ means that going forward, absent any shocks, the MPC is considering only two options — status quo or a rate cut.
“Let me also clarify that the stance should not be directly associated with liquidity conditions…Monetary policy decisions to change policy rates do however have implications for liquidity management, being the operational tool to carry out the policy changes.
“To summarise, our stance provides policy rate guidance, without any direct guidance on liquidity management,” the Governor said.
On liquidity, he stressed that the RBI will provide sufficient liquidity, which could be in the region of 1 per cent of the banking system’s deposits in the current easing cycle, so that the transmission of the policy rate into the interest rate happens quickly.
He underscored that the MPC is aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance.
HDFC Bank economists led by Sakshi Gupta, Principal Economist, expect monetary policy transmission, of the cumulative 50 bps rate cuts since February, to money market rates and the deposit rates to start improving going forward as liquidity conditions remain comfortable.
“We expect two more rate cuts in 2025, with the policy rate expected at 5.5% (earlier expectation of 5.75-5.5% range), with the next rate cut likely to be delivered in the June policy.
“That said, the tilt for the future policy rate trajectory is now shifting from ‘short and shallow’ to a deeper rate cut cycle if global trade tensions continue to escalate. The sub-4 per cent inflation projections for the next three quarters provide ample space for the RBI to cut rates, even below 5.5 per cent, if required,” they said.
CS Setty, Chairman, State Bank of India and Indian Banks’ Association, opined that repo rate cut coupled with the revision in stance to accommodative is a swift, timely move and a forward guidance to the market to stay supportive against evolving global uncertainties.
“The revision of stance to accommodation will cushion the secondary impact of tariffs on the domestic economy. With inflation under check, growth imperatives will take precedence in FY26,” he said.
Sarvjit Singh Samra, MD & CEO, Capital Small Finance Bank, noted that for the banking sector, the rate cut and shift in stance to ‘accommodative’ marks a significant tailwind, as lower funding costs and improved credit transmission are likely to boost lending activity.
Published on April 9, 2025
RBI Governor Sanjay Malhotra during a press conference after announcement of the first bi-monthly monetary policy of the current fiscal year, in Mumbai on Wednesday,
| Photo Credit:
PTI
Benign inflation and a moderate growth outlook prompted the Reserve Bank of India’s rate-setting panel to usher in a dovish monetary policy. The panel voted unanimously to cut the policy repo rate by 25 basis points (bps) and change the monetary policy stance from “neutral” to “accommodative”. Both these decisions were widely anticipated by the market players.
The reduction in the repo rate, which is the interest rate at which Banks borrow funds from the RBI to overcome short-term liquidity mismatches, from 6.25 per cent to 6.00 per cent, is expected to support growth, which could face headwinds due to the escalating global tariff war.
The latest rate cut, which follows a 25 bps cut in February 2025, comes in the backdrop of the latest retail inflation reading dipping below the monetary policy committee’s (MPC) 4 per cent target.
On the rationale for the rate cut, Governor Sanjay Malhotra emphasised that there is a decisive improvement in the inflation outlook. Further, there is now a greater confidence of a durable alignment of headline inflation with the 4 per cent target over a 12-month horizon.
On the other hand, impeded by a challenging global environment, growth is still on a recovery path after an underwhelming performance in the first half of FY25. In such challenging global economic conditions, the benign inflation outlook and moderate growth demand that the MPC continues to support growth, Malhotra said.
The RBI also pared the real GDP and retail inflation projections for FY26 to 6.5 per cent (earlier projection: 6.7 per cent) and 4 per cent (4.2 per cent), respectively.
Malhotra observed that the change in the monetary policy stance signals the intended direction of the policy rates, going forward.
Accordingly, with respect to the policy rate, the change in stance from ‘neutral’ to ‘accommodative’ means that going forward, absent any shocks, the MPC is considering only two options — status quo or a rate cut.
“Let me also clarify that the stance should not be directly associated with liquidity conditions…Monetary policy decisions to change policy rates do however have implications for liquidity management, being the operational tool to carry out the policy changes.
“To summarise, our stance provides policy rate guidance, without any direct guidance on liquidity management,” the Governor said.
On liquidity, he stressed that the RBI will provide sufficient liquidity, which could be in the region of 1 per cent of the banking system’s deposits in the current easing cycle, so that the transmission of the policy rate into the interest rate happens quickly.
He underscored that the MPC is aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance.
HDFC Bank economists led by Sakshi Gupta, Principal Economist, expect monetary policy transmission, of the cumulative 50 bps rate cuts since February, to money market rates and the deposit rates to start improving going forward as liquidity conditions remain comfortable.
“We expect two more rate cuts in 2025, with the policy rate expected at 5.5% (earlier expectation of 5.75-5.5% range), with the next rate cut likely to be delivered in the June policy.
“That said, the tilt for the future policy rate trajectory is now shifting from ‘short and shallow’ to a deeper rate cut cycle if global trade tensions continue to escalate. The sub-4 per cent inflation projections for the next three quarters provide ample space for the RBI to cut rates, even below 5.5 per cent, if required,” they said.
CS Setty, Chairman, State Bank of India and Indian Banks’ Association, opined that repo rate cut coupled with the revision in stance to accommodative is a swift, timely move and a forward guidance to the market to stay supportive against evolving global uncertainties.
“The revision of stance to accommodation will cushion the secondary impact of tariffs on the domestic economy. With inflation under check, growth imperatives will take precedence in FY26,” he said.
Sarvjit Singh Samra, MD & CEO, Capital Small Finance Bank, noted that for the banking sector, the rate cut and shift in stance to ‘accommodative’ marks a significant tailwind, as lower funding costs and improved credit transmission are likely to boost lending activity.
Published on April 9, 2025
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The point of using Lorem Ipsum is that it has a more-or-less normal distribution of letters, as opposed to using ‘Content here, content here’, making
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It is a long established fact that a reader will be distracted by the readable content of a page when looking at its layout. The point of using Lorem Ipsum is that it has a more-or-less normal distribution
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