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RBI Signals Cautious Path for Further Rate Cuts Amid Growth Recovery

India's central bank maintains an accommodative stance with a 6% repo rate, balancing liquidity infusions and inflation risks as GDP forecasts are adjusted downward.

A man speaks on his phone as he walks past the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India, February 7, 2025. REUTERS/Francis Mascarenhas/File Photo
CAN RATE CUTS OFFSET TARIFF THREATS?

Overview

  • The Reserve Bank of India has cut the repo rate twice in 2025, now at 6%, and shifted to an accommodative policy stance to support economic growth.
  • Monetary Policy Committee member Saugata Bhattacharya emphasized the need for calibrated easing to prevent inflationary pressures as growth nears potential levels.
  • The RBI has infused ₹6.21 trillion in liquidity this year and plans a ₹1.25 trillion bond purchase in May to lower interbank funding costs.
  • India's GDP growth forecast for the current fiscal year has been revised down to 6.5% from 6.7%, reflecting global trade uncertainties, including U.S. tariff policy shifts.
  • An accelerated transmission of rate cuts to consumer loans is expected over the next two quarters, with most bank loans now tied to external benchmarks.