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Below the Views on RBI Monetary Announcement by Ms. Anitha Rangan, Economist at Equirus

As widely expected, RBI has held its policy rate at 6.5%, while announcing a CRR cut of 50 bp in two tranches of 25 bp each over the next two fortnight, Doing this RBI has provided adequate liquidity and eased the short term borrowing, while keeping longer term well anchored. Alongside the growth outlook of 7.2% for FY25 has been taken down to 6.6%, with the recent slowdown in growth. Inflation outlook has however been revised upwards to 4.8% for FY25 from 4.5% with 4% reaching in Q2 of FY26.

The inflation-growth outlook equation with upward revision in inflation and downward growth revision with a positive tone for prospects. along with RBI’s cautious tone of “prudence, patience, practicality” suggests that RBI will not act on its policy rate soon. External factors take precedence and RBI will not relent soon on rates until there is some clarity on the extent of storm in the external world. RBI revising the interest rate ceiling by 200 bp upwards on FCNR(B) deposits suggests that RBI is worried about the vulnerability on the external front (on USDINR). Therefore policy rates on hold, don’t expect RBI to relent on rates before April ’25, if there is visibility on Q2 inflation trending towards 2% and some clarity on external side emerges, Recall CRR hike of 50 bp done in April 2022 is now reversed. But the policy hikes done from May-22 will take much longer to reverse and not fully. Don’t expect more than 50 bp for 2025. Be practical and patient, the external sector needs more attention!"

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