RBI’s Pro-Growth Policy Stance

RBI has implemented back-to-back rate cuts since February 2025, reducing policy rates by 50 basis points (bps). Effective easing is ~75 bps, as overnight rates are closer to the Standing Deposit Facility (SDF), the lower end of the policy corridor.

Aggressive Liquidity Infusion

• RBI infused ₹5.23 trillion into the system via government bond purchases (OMOs) between December 2024 and May 2025.
• The speed of infusion outpaced RBI’s response during the COVID-19 crisis, where a similar liquidity infusion took a full year.

Macroprudential Easing

• Regulatory relaxations include:
  • Eased bank lending norms to NBFCs.
  • Deferred implementation of Liquidity Coverage Ratio (LCR) requirements for digital retail deposits.

Inflation Dynamics Supporting Easing

• Headline CPI inflation has stayed below 4% since February 2025.
• Food inflation has eased substantially:
  • Only 14% of CPI food items are showing >6% inflation, down from 57% a year ago.
• Core inflation remains subdued, reflecting a negative output gap and weak demand-side pressures.

External Environment Favorable for Easing

• The “impossible trinity” challenge (strong dollar, capital outflows, domestic easing) has eased.
• Rupee depreciation pressures have abated amid weakening dollar and concerns over US fiscal stability.
• This offers policy space for RBI to focus on domestic growth.

BS