RBI Monetary Policy: MPC Cuts Repo Rate By 25 Bps For Second Time In Row, Stance Changed To Accommodative

The Reserve Bank of India (RBI) decided to cut key interest rates by 25 basis points on April 9, 2025. This marks the second consecutive rate cut by RBI under new governor Sanjay Malhotra and the first easing in rates for FY26. However, RBI turned hawkish by changing its monetary policy stance to accommodative from neutral.

The latest RBI policy verdict is in line with GoodReturns.In a poll of 35 economists, which majority predicted a 25 bps cut on Wednesday.

RBI said, that 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 per cent with immediate effect. Consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) shall stand adjusted to 5.75 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent.

This decision is in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth, it added.

On the other hand, RBI also decided to change the stance from neutral to accommodative. It said, "The rapidly evolving situation requires continuous monitoring and assessment of the economic outlook."

Aditi Nayar, Chief Economist and Head - Research & Outreach, ICRA said, "The 25 bps cut in the repo rate was along expected lines, given the recent evolution of growth inflation dynamics. Given the burgeoning global uncertainty, the reduction in the MPC's FY2026 forecasts for both the CPI inflation and GDP growth by 20 bps each and the change in stance to accommodative, amidst the clarity that it signals the future rate and not liquidity trajectory, we now expect an additional 50 bps of rate cuts over the next 3 policy reviews."

The change in policy stance signalled that RBI is cautious over the uncertainties that loomed on the economy because of the 'tariffs tantrum'. RBI said that higher tariffs will have a negative impact on net exports. RBI governor's statement comes after Donald Trump imposed a 26% reciprocal tariff on India with effect from April 2.

Talking about the latest tariffs, RBI said, "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."

RBI GDP Growth Target:

For GDP growth, RBI said, 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 the services sector is expected to be resilient. Headwinds from global trade disruptions continue to pose downward risks.

Taking all these into consideration, RBI has projected real GDP growth of 6.5% for FY26, with Q1 at 6.5%; Q2 at 6.7%; Q3 at 6.6%; and Q4 at 6.3%.

RBI Inflation Target:

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 considerably 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, as per RBI.

Furthermore, RBI said, 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.

Thereby, assuming a normal monsoon, RBI is predicting a 4% inflation rate for FY26, which is its main objective. For Q1, CPI is forecasted at 3.6%; Q2 at 3.9%; Q3 at 3.8%; and Q4 at 4.4%. The risks are evenly balanced.

After RBI's policy outcomes, Sensex and Nifty extended their early bearish tone. The 30-scrip benchmark performed at 73,822.23, down by 404.85 points or 0.55%, while Nifty 50 underperformed further with a decline of 152.75 points or 0.68% to trade at 22,383.10, at the time of writing. Bank Nifty plunged by more than 425 points to trade at around 50,085.

In the February 2025 policy, the RBI governor Sanjay Malhotra led MPC unanimously decided to reduce the policy repo rate by 25 bps to 6.25%, marking the first easing in rates in five years. Prior to the February policy, repo rates were kept unchanged at 6.25% for eleven consecutive policies. RBI under Shaktikanta Das had increased the repo rate by 250 bps from May 2022 to February 2023 due to severe inflationary pressure.

The minutes of the MPC's meeting will be published on April 23, 2025.

The next meeting of the MPC is scheduled from June 4 to 6, 2025.