Context:
The Reserve Bank of India’s six-member Monetary Policy Committee (MPC) will convene its first meeting for FY26 starting Monday.
A repo rate cut of 25 basis points (bps) is widely expected, with outside chances of a deeper 35 bps cut being discussed by analysts.
Economic and Global Backdrop
- The meeting takes place amid rising global uncertainties, including reciprocal tariffs by the US administration, which could weigh on India’s growth.
- Inflation is projected to remain below the RBI’s 4% target in the coming months, possibly prompting a shift in stance from neutral to accommodative.
Growth and Inflation Insights
- Barclays forecasts Q4 FY25 real GDP growth at 6.7% YoY, implying full-year growth of 6.2%, lower than the RBI’s and MoSPI’s 6.5% estimate.
- The meaningful undershoot in CPI inflation opens up room for further rate cuts, possibly a non-standard 35 bps cut, though 25 bps remains Barclays’ base case.
RBI’s Recent Liquidity Actions
- Between January and March 2025, the RBI infused approximately ₹8 trillion in durable liquidity.
- It recently announced a ₹80,000 crore bond purchase via open market operations, pushing sovereign bond yields to a three-year low.
Market and Policy Tools Outlook
- The central bank is expected to continue supporting liquidity using variable rate repo operations, open market bond purchases, and forward forex swaps.
- Analysts from Bank of America expect RBI to maintain its accommodative approach to liquidity management.
Previous Policy Action & Expectations
- In February 2025, the RBI delivered its first repo rate cut in five years (25 bps), with all MPC members voting unanimously in favor.
- A key aspect to watch in the April meeting will be whether the RBI officially changes its policy stance to “accommodative.”
