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File photo: RBI Governor Sanjay Malhotra
| Photo Credit:
ANI
The RBI’s six-member Monetary Policy Committee (MPC) is expected to go for a 25-basis-point repo rate cut in its upcoming meeting to shield the domestic economy from the fallout of the US’ reciprocal tariffs on global trade and the expected slowdown this may trigger in the world economy.
The domestic macroeconomic setting, in terms of recent retail inflation and GDP growth figures, is also favourable for further deepening the rate cut cycle, which began with a 25-basis-point cut in the repo rate from 6.50 per cent to 6.25 per cent in February 2025.
Headline CPI (consumer price index-based), or retail inflation, moderated to a seven-month low of 3.6 per cent in February 2025 from 4.3 per cent in January 2025, as food prices—especially vegetables—recorded a sharp decline driven by the arrival of winter crops in the market.
Real Gross Domestic Product (GDP) picked up pace in the third quarter (October-December 2024), growing 6.2 per cent against 5.6 per cent in the previous quarter.
While a rate cut is seen as certain, market players are divided on the MPC’s monetary policy stance. Some expect the MPC to shift to an “accommodative” stance from “neutral” to reflect the easing cycle, especially as the RBI has kept system liquidity in surplus since the beginning of the current month. Others expect it to maintain the “neutral” stance, given that the global tariff war could have inflationary effects.
The monetary policy stance was last changed to “neutral” from “withdrawal of accommodation” in October 2024.
The MPC’s first bi-monthly meeting of FY26 is scheduled from April 7 to April 9. The committee has a new member — Poonam Gupta, who was recently appointed RBI Deputy Governor for a three-year term.
Referring to the then prevailing growth-inflation dynamics, Governor Sanjay Malhotra, in his first bi-monthly monetary policy statement in February 2025, observed that the MPC, while continuing with the neutral stance, felt that a less restrictive monetary policy was more appropriate at the current juncture.
The MPC will take a decision in each of its future meetings based on a fresh assessment of the macroeconomic outlook, he added.
Sonal Badhan, Economist at Bank of Baroda, expects the central bank to cut the repo rate by another 25 basis points. She opined that since the last meeting, inflation has come under control, which gives the RBI more room to adopt a “less restrictive” monetary policy and support growth.
Badhan also expects the stance to be changed to “accommodative” and anticipates some revision to the GDP forecasts. BoB has priced in a cumulative 75-basis-point reduction in rates in this cycle.
ICRA expects the MPC to cut the repo rate by 25 basis points in its upcoming meeting next week while maintaining a neutral stance.
“While the central bank’s liquidity interventions are likely to continue, with the aim of offsetting the upcoming drain arising from the unwinding of short positions in its forward book and the maturity of long-tenor VRRs (variable rate repos), we do not expect any major announcements around liquidity injections such as a CRR (cash reserve ratio) cut in the MPC meeting. The recent announcements of liquidity injections are likely intended to nudge a faster transmission of rates,” the agency said.
Devendra Kumar Pant, Chief Economist and Head of Public Finance at India Ratings and Research, observed that monetary policy actions in FY26 will depend on inflation movements, the liquidity situation, and the trajectory of global commodity prices, with monetary easing likely to be limited to 75 basis points in FY26.
Published on April 6, 2025
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