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RBI has announced a 25-bps rate cut in policy repo rate in its latest Monetary Policy Committee (MPC) meeting. The repo rate has been reduced from 6.5% to 6.25%. The central bank has also maintained its neutral monetary policy stance to maintain the Consumer Price Index (CPI) inflation level at 4% with a margin of 2%.
While sharing the rationale for the repo rate cut, the central bank in its press release said, “The MPC noted that inflation has declined. Supported by a favourable outlook on food and continuing transmission of past monetary policy actions, it is expected to further moderate in 2025-26, gradually aligning with the target. The MPC also noted that though growth is expected to recover from the low of Q2 in FY 2024-25, it is much below that of last year. These growth-inflation dynamics open up policy space for the MPC to support growth, while remaining focussed on aligning inflation with the target. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.25 per cent.”
The central bank also shared its reasons for monetary policy stance, “At the same time, excessive volatility in global financial markets and continued uncertainties about global trade policies coupled with adverse weather events pose risks to the growth and inflation outlook. This calls for the MPC to remain watchful. Accordingly, the MPC unanimously voted to continue with a neutral stance. This will provide MPC the flexibility to respond to the evolving macroeconomic environment.”
Rajeev Radhakrishnan, CIO - Fixed Income, SBI Mutual Fund
A rate cut that was widely anticipated and priced in has been delivered by the RBI MPC. Policy rate reduction was clearly a question of timing in the current context considering the evolving situation on the currency led by global factors and capital flows. At the same time, there has been no change in stance or any other provision of liquidity support. While the rate cut was clearly subjective, the lack of specifics on liquidity could potentially impede transmission. While yields have moved up a bit, it is anticipated that the RBI would continue to ensure targeted infusion of liquidity over the coming months that should enable yields to stay anchored. Overall, the weaker than anticipated growth over the previous year and projection of CPI for FY26 closer to the target has provided confidence to the RBI to ease rates.
Mahendra Kumar Jajoo, CIO - Fixed Income, Mirae Asset MF
In line with the market consensus, MPC reduced key policy repo rate by 25 bps. Keeping in mind the prevalent volatile geopolitical situation, stance has been retained as neutral. Guidance seems to be of further rate cuts in coming quarters. While GDP growth forecast is at 6.7% for FY26, up marginally from 6.6% at the last meeting, inflation projections are revised downward to 4.5% vs 4.8% in previous review. Further there is strong guidance for providing adequate liquidity including injecting durable liquidity which typically indicates more open market purchase operations of dated securities. Thus, policy is a positive response to meaningful fiscal consolidation and guide path in the union budget and seems to set the tone for a deeper easing cycle and possibly more rate cuts to follow. Fixed income markets should witness further strengthening of ongoing momentum and bond yields are expected to ease further in coming months.
Shriram Ramanathan, CIO, Fixed Income, HSBC Mutual Fund
The RBI MPC delivered on market expectations of a 25bps repo rate cut, however it disappointed by retaining stance at neutral (unanimously) and not announcing any specific new measures on liquidity injection. The new RBI governor Mr. Sanjay Malhotra played out a balancing act, by easing rates, while clearly being mindful of the global market volatility and its potential impact on our currency, and hence maintaining a cautious tone. We expect the RBI MPC to deliver another 25bps cut at the April policy, while continuing to announce liquidity related measures as and when required on a “proactive” basis. While the initial reaction of bond markets has been one of disappointment, with yields inching up a few basis points, we believe interest rates will continue to soften over the next few months and retain our positive duration bias and outlook.
Siddharth Chaudhary, Senior Fund Manager - Fixed Income, Bajaj Finserv MF
In line with ours and market expectation, the RBI has delivered first rate cut. We have been pointing out that despite challenges it’s possible that India's consumer price inflation will progressively align towards the inflation target of around 4 per cent in FY26. In addition, growth slack has been clearly visible. This creates space for rate cuts in the coming few quarters. We stick to our long-held view of 50 bps rate cut in this cycle as we don’t see any macro and global data as of now warranting more easing.
Market reaction clearly shows that there was an expectation of even more easing in terms of liquidity and even change in stance. But note that the governor has pointed out proactive action on liquidity going forward to supporting growth.
Avnish Jain, Head – Fixed Income, Canara Robeco MF
This move was as per market expectations, especially post continuance of fiscal consolidation in the Union Budget. This rate cut happened almost after 5 years, with RBI MPC keeping rates in pause mode for almost 2 years. The only disappointment was that stance was left unchanged at "Neutral", as RBI MPC chose to retain flexibility in light of global market volatility and trade uncertainty. The governor noted that while global growth has moderated somewhat, disinflation process seems to have stalled, leading to higher uncertainty. The governor further added that, in India, growth inflation dynamics has opened up space to focus on growth. As per RBI estimates, growth for FY2026 is projected at 6.7%, while inflation is expected to drop to 4.2% from estimated 4.8% in FY2025. Lower inflation may give RBI more room to reduce policy rates in upcoming policies. The governor reiterated the RBI's stance on currency, saying that foreign currency intervention was aimed at curbing excess volatility and RBI did not target any specific level or band.
Vinit Bolinjkar, Head of Research, Ventura Securities
Rate cut of 0.25% to 6.25% by the RBI has been undertaken after 5 years. While the rate cut is fully discounted by the market, together with the recently liquidity boosting measures it will usher in fresh investments and kick start the consumption cycle given the expectation of lower inflation from the strong rabi and kharif crop. Banking, auto, FMCG, consumer durables. Manufacturing, NBFCs all are expected to do well.
