RBI Monetary Policy Review: Shift To Accomodative Stance In Times Of Uncertainty, Says Dolat Capital

As Governor stated, the stance of policy signals the intended direction of policy rates going forward. In the absence of any shocks, MPC is considering either status quo or rate cuts. We expect cumulative 100 bps of rate cuts (out of which 50 bps is already done) in the ongoing easing cycle. If economic situation demands and in absence of any food price shocks due to weather related changes, we could expect furthermore easing from MPC. Risks to aggressive easing are currency devaluation, interest rate differentials between India and US and higher food prices.

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Dolat Capital Report

The policy announcements were largely on expected lines. As the dynamics of inflation have improved with food prices cooling off, the MPC could focus on reviving domestic growth as tariff uncertainty deters private investment and impacts growth in exports.

We think the coordinated form of stimulus through fiscal (i.e. tax cuts in Budget 2025) and monetary measures (regulatory easing, liquidity measures and rate cuts) along with moderation in headline inflation would help to revive the consumption cycle which may eventually kick start a broad-based private capex cycle (with some time lags).

Attaining macro stability at a time of uncertainty may provide the muchneeded certainty to investors which could drive capital flows to India and help in currency stabilization.

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