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Below the RBI Monetary Policy Reaction Comment by Naval Kagalwala, COO & Head of Products at Shriram Wealth Ltd

“The RBI MPC cut the repo rate by 25 bps, supported by the benign inflation outlook on both headline and core inflation. The neutral policy stance was maintained. Inflation for FY26 is projected at 2% vis-à-vis 2.6% earlier, with projection for H1FY27 also lowered when compared to Oct estimates (with Q1 and Q2 now seen at 3.9% and 4% respectively - within RBI's medium-term inflation target). Additionally, real GDP growth for this year was raised from 6.8% to 7.3%. Importantly, the RBI also announced measures such as INR 1 trillion OMOs to be held in two equal tranches this month, and USD 5bn buy/sell swap of 3Y to infuse durable liquidity. The overall outcome was largely along expected lines, with limited downside in bond yields seen following the announcement. The Central Bank clarified that the primary purpose of the OMO was to manage liquidity and not to directly influence yields. During the post policy conference, RBI Governor assured to provide ample system liquidity in the current rate environment, with OMOs to be conducted across maturities. The Governor also noted that tolerance towards INR depreciation had not changed and repeated that INR will be allowed to move as per market forces. Lastly, the policy statement noted that growth-inflation dynamics continues to provide space to support the growth momentum - implying that conducive financial conditions are here to stay as long as the inflation remains soft.”

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