Market reactions to the Reserve Bank of India's latest policy were swift and largely aligned: the rate-cutting phase is over. Bank of America said the RBI's decision to hold the repo rate at 5.25% likely marks the end of the easing cycle, barring a fresh deterioration in growth or inflation data.
According to BofA, the neutral hold signals that the central bank is now firmly data-dependent, with future actions guided by evolving macro indicators rather than pre-emptive easing. The brokerage also noted that upward revisions to GDP and CPI for the first half of FY27 strengthen the case for policy stability, shifting RBI's focus toward liquidity management and transmission rather than headline rate moves.
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Economists Back RBI's Caution
Independent economist Abheek Barua said the RBI's approach was prudent, noting that policymakers were right to wait for clearer signals from the new data series rather than “get ahead of themselves.” He expects both inflation and GDP levels to edge higher on a level basis post-rebasing.
However, Barua flagged weak transmission as a concern, particularly in the government bond market, where yields have remained stubbornly elevated despite earlier rate cuts.
Former RBI Deputy Governor R Gandhi echoed the view that further cuts would be difficult. With inflation behaving well and deposit rates playing a crucial role for savers, he said additional easing could strain fixed deposit returns relied upon by a large section of the population. He added that rebasing would change optics rather than underlying economic realities.
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Bond Market Worries Persist
Market participants remain focused on the lack of bond market transmission. Jayesh Mehta said the issue lies at the long end of the yield curve, driven by demand-supply dynamics rather than liquidity. He expects RBI to intervene more actively through secondary market operations or tools such as Operation Twist.
Echoing this, Manish Sonthalia said the policy outcome was fully priced in, with equity markets now more concerned about elevated government borrowings and sticky 10-year yields. For equities, he added, attention has shifted toward trade developments and the earnings season rather than monetary policy signals.
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RBI Pauses As Expected
The Reserve Bank of India maintained the repo rate at 5.25%, following cumulative cuts of 125 basis points since February last year. The decision was widely anticipated, with 34 of 39 economists surveyed by Bloomberg expecting a pause.
Governor Sanjay Malhotra said India's economic fundamentals remain strong despite global volatility, adding that growth momentum appears durable. The pause, analysts said, reflects a desire to assess incoming data, including the impact of rebased GDP and inflation series, before committing to further action.
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