Context:
In the April 2025 meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to cut the repo rate by 25 basis points (bps), continuing the trend of rate cuts initiated in February. This decision reflects the committee’s accommodative stance, which was adjusted from neutral earlier this month.
- Policy Action: Repo rate cut by 25 bps.
- Policy Stance: Accommodative stance aimed at supporting growth.
Inflation Outlook
- CPI-based Inflation: Governor Sanjay Malhotra highlighted that the inflation outlook is benign, with CPI inflation expected to remain aligned with the 4% target throughout FY2025-26.
- Factors Supporting Inflation Outlook: The favorable factors outweigh any potential negative impacts, driving disinflation in the headline CPI.
- Inflation Target: Expected to stay within the 4% range, creating space for further policy easing.
Growth Projections
- GDP Growth: The RBI projected GDP growth at 6.5% for FY2025-26. Although India remains the fastest-growing major economy, the growth rate is considered below aspirations.
- Policy Rationale: Rate cuts aim to stimulate private consumption and corporate investment to boost economic recovery.
Global Economic Impact
- Global Trade and Economic Disturbances: RBI members expressed concerns about the impact of global trade wars on India’s economy, especially considering US tariffs. However, India’s growth is largely driven by domestic demand, which provides some insulation from external shocks.
- Commodity Prices: A softening of crude oil and other commodity prices may offer positive spillovers to the Indian economy.
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