Comment on RBI bi-monthly monetary policy by Ajay Garg, CEO, SMC Global Securities Ltd
Below the Comment on RBI bi-monthly monetary policy by Ajay Garg, CEO, SMC Global Securities Ltd
RBI has last cut the repo rate by 25 basis points to 6.25% in February 2025, driven by inflation dropping and to stimulate economic growth. India’s CPI inflation fell to 3.61% in February 2025 and is lower than the RBI’s tolerance target of 4%. The food inflation has also dropped 3.75% in February 2025 from 5.97% in January 2025. RBI has already infused durable liquidity of around ?6.5 trillion by cutting the CRR, open market operations (OMO), and foreign currency swaps. With lowering inflation, the rate cut consideration by the RBI seems fruitful.
The US reciprocal tariffs on India and other major economies have increased the risk of a global recession. This can lead to a decrease in India’s export earnings and create uncertainty in India’s growth trajectory. As the global economy is facing the wrath of reciprocal tariffs from the US and starting the trade wars, there is a high probability that the RBI will cut the repo rate by another 25 basis points in the April meeting.
While the US is at risk of heightened inflation with tariffs on imports, the FOMC has kept the benchmark rate unchanged in the range of 4.25% to 4.5% in its last meeting. The rate cut by the RBI could benefit India by making borrowing cheaper for individuals and businesses, leading to higher spending and investment. Also, India is still at a benefit with a comparative advantage over the US tariff stance as compared to China, with an expectation of a shift of the supply chain to India. So, there is a possibility that the RBI will take the rate cut route with the benefit of lowering inflation and to offset the marginal impact of US tariffs on India’s economic growth.
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