Reserve Bank announces changes in Repo Rates for the 02nd. Successive time.

I am Sanjay, but not Sanjay of Mahabharat! who can predict future rate actions, and at what level rate moderation will stop amid the ongoing global uncertainties, RBI Governor Sanjay Malhotra said on Wednesday. Malhotra’s remarks came at a media briefing on being asked if more interest rate cuts are in the offing, after he delivered the second straight interest rate cut since taking over as the RBI governor. He further said monetary policy and fiscal policy are acting in tandem to meet the growth-inflation targets. “It is a joint effort… the government has done its bit in the Budget recently by taking a large number of measures in terms of the increased capex, tax rebates and we have reduced repo rate and changed the stance going forward, which means that the direction of the policy repo rate is downwards. Where it will reach… we really don’t know. I am Sanjay, but I am not Sanjay of Mahabharat to be able to foresee that far. I do not have the divine vision that he had“, he said. He has further stated “we will jointly (with the government) try to manage the growth and the inflation dynamics in our country“.

Earlier in the day, the RBI Governor had announced repo rate cut for the second consecutive time and signalled more easing ahead as the Reserve Bank of India (RBI) sought to bolster the economy in face of further pressure from damaging US tariffs. Following the rate cut of 25 basis points, the key policy rate eased to 6%. The move lowers borrowing costs to the lowest level since November 2022, amid easing inflation and a fall in oil prices.

Monetary Policy Decisions – The Monetary Policy Committee (MPC) held its 54th meeting from April 7 to 9, 2025 under the chairmanship of Shri Sanjay Malhotra, Governor, Reserve Bank of India. The MPC members Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Prof. Ram Singh, Dr. Rajiv Ranjan, and Shri M. Rajeshwar Rao had also attended the meeting.

After assessing the current and evolving macroeconomic situation, the MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.00% with immediate effect. Consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) shall stand adjusted to 5.75% and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%. This decision is in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

Growth and Inflation Outlook – The global economic outlook is fast changing. The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation. Financial markets have responded through sharp fall in dollar index and equity sell-offs with significant softening in bond yields and crude oil prices.

The National Statistics Office (NSO) has estimated real Gross Domestic Product (GDP) growth at 6.5% for 2024-25, on top of 9.2% in 2023-24. Going forward, sustained demand from rural areas, an anticipated revival in urban consumption, expected recovery of fixed capital formation supported by increased government capital expenditure, higher capacity utilisation, and healthy balance sheets of corporates and banks are expected to support growth. Merchandise exports would be weighed down by the evolving global economic landscape which appears to be uncertain at the current juncture, while services exports are expected to sustain the resilience. On the supply side, while agricultural prospects appear bright, industrial activity continues to recover, and services sector is expected to be resilient.

Headwinds from global trade disruptions continue to pose downward risks. Taking all these factors into consideration, real GDP growth for 2025-26 is now projected at 6.5%, with Q1 at 6.5%; Q2 at 6.7%; Q3 at 6.6%; and Q4 at 6.3% per cent consecutively. The risks are evenly balanced.

CPI headline inflation declined by a cumulative 1.6% points during January-February 2025, from 5.2% in December 2024 to a low of 3.6% in February 2025. On the back of a strong seasonal correction in vegetable prices this year, food inflation dropped to a 21-month low of 3.8% in February. Fuel group continued to remain in deflation. Core inflation, after remaining steady in December 2024-January 2025, inched up to 4.1% in February 2025, driven primarily by a sharp pick-up in gold prices.

The outlook for food inflation has turned decisively positive. There has been a substantial and broad

based seasonal correction in vegetable prices. The uncertainties on rabi crops have abated marginally, and the second advance estimates point to a record wheat production and higher production of key pulses over last year. Along with robust kharif arrivals, this is expected to set the stage for a durable softening in food inflation. Sharp decline in inflation expectations for three months and one year ahead period would help anchor inflation expectations going ahead. Furthermore, the fall in crude oil prices augurs well for the inflation outlook. Concerns on lingering global market uncertainties and recurrence of adverse weather related supply disruptions pose upside risks to the inflation trajectory. Taking all these factors into consideration, and assuming a normal monsoon, CPI inflation for the financial year 2025-26 is projected at 4.0%, with Q1 at 3.6%; Q2 at 3.9%; Q3 at 3.8%; and Q4 at 4.4%. The risks are evenly balanced.

Rationale for Monetary Policy Decisions – The MPC noted that inflation is currently below the target, supported by a sharp fall in food inflation. Moreover, there is a decisive improvement in the inflation outlook. As per projections, there is now a greater confidence of a durable alignment of headline inflation with the target of 4 per cent 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 2024-25. While the risks are evenly balanced around the baseline projections of growth, uncertainties remain high in the wake of the recent spurt in global volatility. In such challenging global economic conditions, the benign inflation and moderate growth outlook demands that the MPC continues to support growth. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.00%. Moreover, it also decided to change the stance from neutral to accommodative. However, it noted that the rapidly evolving situation requires continuous monitoring and assessment of the economic outlook.

The RBI Governor, Mr. Sanjay Malhotra also reiterated that the RBI will maintain sufficient liquidity for speedier rate cut transmission, and would make provisions for sufficient liquidity bolstering monetary policy transmission.

Team Maverick