Ms. Rajani Sinha, Chief Economist, CareEdge Ratings on RBI MPC Data
‘’In line with our expectations, the MPC has unanimously decided to reduce the policy repo rate by 25 bps to 6.25% while retaining neutral stance. This decision to lower the policy rate comes amidst moderating growth momentum, increasing challenges from external factors, and a slowdown in inflationary pressures. The decision to retain neutral stance will allow the RBI to adjust its policy according to evolving macroeconomic conditions amid heightened uncertainty, especially from the external sector. The GDP growth for the upcoming year is projected at 6.7%, which is in line with our projection. However, the RBI anticipates a lower inflation rate of 4.2% for FY26, below our projections of 4.5%. On the liquidity front, the governor has assured proactive measures ensuring comfortable liquidity conditions. We expect the RBI to continue upholding favourable money market conditions by elongating tenor and higher quantum of repo auctions, currency swaps, and OMO purchases. These liquidity measures should ensure a smoother transmission of rate cuts in the money market.
The RBI will remain watchful of the global uncertainties and their impact on the Indian economy. A global trade war could adversely affect India’s growth, inflation, and trade dynamics. However, there is still a lack of clarity on the extent of this impact. Sharp FII outflows and rupee weakening have further complicated the task for the RBI. However, moderating food inflation and benign core inflation will provide some comfort. The governor has stressed on the ‘flexible’ aspect of the inflation targeting framework and improving forecasting models, plausibly signalling a more forward-looking approach towards the policy decisions. This will also prepare the ground for rate cuts in the future. A further rate cut of 25-50 bps is expected in FY26, depending on how growth-inflation dynamics play out. Global factors and their implications for the domestic economy will be critical for the RBI in FY26.’’
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