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Below the Comment on RBI`s 25 bps rate cut by Ajay Garg, Director & CEO, SMC Global Securities

RBI’s 25 bps repo rate cut to 5.25%, Rs.1 lakh crore durable liquidity injection via OMOs, and the 3-year USD 5 billion USD/INR buy-sell swap seamlessly build on the earlier 2025 stimulus trifecta — the 100 bps CRR reduction, aggressive income-tax relief, and GST. This coordinated, multi-engine stimulus will simultaneously slash borrowing costs, boost disposable incomes, lower consumer prices, and flood the system with long-term rupee and dollar liquidity, driving private consumption, credit growth and real GDP growth trajectory.

The RBI has also increased the real GDP forecast for FY26 to 7.3% from the earlier forecast of 6.8%. Additionally, the headline CPI inflation has been reduced for FY26 to 2% from the previous forecast of 2.6%. This comes at a time when India is facing steep US tariffs, but the internal growth factors remain robust, with consumption and expenditure all seeing a boost.

Beyond the repo rate cut, the RBI also emphasised system-wide liquidity by announcing a Rs.1 lakh crore OMO purchase. Sharp rupee declines often coincide with foreign investor outflows, which can tighten liquidity in the banking system. An OMO purchase offsets this by injecting durable funds back into the system, helping stabilise both liquidity conditions and market sentiment.

With a 3-year USD 5 billion USD/INR buy–sell swap, the RBI has created a source of US dollars to the market. The swap helps ease pressure on the rupee over time, which had been under scrutiny after falling below Rs.90. While supporting rupee liquidity in the banking system, the operation simultaneously boosts long-term dollar availability for banks, strengthening overall currency and liquidity stability.

The Indian equity market is expected to benefit from this synergy, as lower policy rates reduce corporate and consumer borrowing costs, encourage credit expansion, enhance earnings visibility, and inject fresh liquidity into the system, acting as a potent short-term catalyst for broader market participation.

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