RBI Monetary Policy: Repo Rate Cut By 25 Basis Points To 6%, Growth Forecast Trimmed

India's Monetary Policy Committee, led by RBI Governor Sanjay Malhotra, cut the benchmark repo rate by 25 basis points while changing its neutral stance to accommodative. This is the second rate cut in a row, following the first one in February.

The MPC 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.

A Bloomberg poll of economists expected a 25 basis points rate cut.

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. 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.

• 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.

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. A sharp decline in inflation expectations for the three months and one-year ahead periods 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 the recurrence of adverse weather-related supply disruptions pose upside risks to the inflation trajectory.