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Below the Perspective on MPC Announcement by Mr. Gautam Duggad, Head of Research, Institutional Equities, Motilal Oswal Financial Services Ltd 

Monetary Policy: RBI cuts repo rate by 50 bps to 5.50%, changes policy stance to ‘neutral’; CRR reduced by 100 bps

 In stark contrast to the consensus estimates (25 bps cut), the RBI’s MPC has cut Repo rate by 50bps to 5.5% from 6.5%. The surprise rate cut of 50bps comes on the back of broad-based moderation in inflation (mainly led by 6th consecutive decline in food inflation in Apr’25) and slower than expected real GDP growth amid tariff policy uncertainties and geopolitical tensions.

The RBI has reduced its FY26 inflation forecast to 3.7% from 4% earlier. The Governor mentioned that inflation expectations are on a downward trend and there is evidence of inflation aligning durably with the target range. Moreover, record wheat production and expectations of a normal monsoon would further keep prices in check.

On the growth front, the RBI has maintained its real GDP forecast of 6.5% for FY26.

The central bank has also decided to cut CRR by 100 bps in a staggered manner over the course of the year in four equal tranches. This CRR cut will release primary liquidity of INR2.5t. This is way more than the market had expected.

We believe that, a benign inflation outlook coupled with a challenging growth outlook amid trade policy uncertainty and geopolitical tensions provide room for more rate cuts. Against this backdrop, we think that there will be two more rate cuts of 25bps each in FY26 to support growth.

 From equities perspective clearly augurs well for NBFC Real Estate and Auto at the margin. Real rates are still 1.8% (5.5-3.7) and thus leaves scope for 1/2 more rate cuts.

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