RBI Unveils New Rate Cut, Shifts Stance to Accommodative

The Reserve Bank of India (RBI) on April 9, 2025, lowered its key policy repo rate by 25 basis points to 6%, marking the second consecutive reduction since February. Announcing the decision after the Monetary Policy Committee’s (MPC) three-day meeting, Governor Sanjay Malhotra underscored the need for a more growth-oriented monetary policy framework. In a notable shift, the RBI also changed its policy stance from “neutral” to “accommodative,” reflecting a willingness to sustain easier financial conditions amid a combination of easing inflation and heightened external risks.

A sharper-than-expected drop in food prices and subdued global crude oil rates have helped keep inflation under control, prompting the RBI to provide additional support to the economy. The central bank’s revised forecasts place consumer price inflation at 4.0% for FY26, down from 4.2%. Officials pointed to significant declines in vegetable prices, a broader moderation in food costs, and relatively stable fuel prices as key reasons for lowering the inflation forecast. Although price pressures could still flare up—particularly if the currency weakens or if trade tensions drive up input costs—the RBI currently sees these risks as “evenly balanced.”

While benign inflation has afforded the space for a rate cut, other elements weigh on India’s economic trajectory. Chief among these is global trade uncertainty, accentuated by reciprocal tariffs imposed by the United States and further potential policy pivots elsewhere. These developments could erode export demand, disrupt supply chains, and raise financing costs. Domestically, growth has been cooling, with both private consumption and investment showing signs of fatigue in recent quarters. According to the RBI, the combination of supportive monetary policy and relatively strong services exports—such as software and business outsourcing—may help sustain momentum, but the macroeconomic environment remains sensitive to swings in global sentiment.

In addition to lowering its inflation projection, the RBI trimmed its real GDP growth forecast for FY26 to 6.5% from the 6.7% previously estimated. The quarter-by-quarter projections, ranging between 6.3% and 6.7%, reflect a measured optimism tempered by caution over global headwinds. Governor Malhotra acknowledged that if trade disruptions escalate, it may impede export-led growth, though strong remittances and net services receipts are expected to keep the current account deficit within manageable levels. Domestically, a pullback in costlier lending—thanks to successive repo rate cuts—could encourage new investment and fortify household consumption, provided commercial banks transmit these lower rates to borrowers effectively.

The RBI’s decision to maintain an accommodative stance underlines its desire to remain flexible in the face of volatility. Yet policymakers cautioned that global markets could witness renewed turbulence should further tariff impositions or other geopolitical events weaken confidence. A stronger US dollar could also exacerbate capital outflows from emerging markets like India, thus raising borrowing costs and destabilizing the rupee. Another area of concern is the monsoon season—adverse weather could rekindle food price pressures, undermining the current benign inflation scenario.

Looking ahead, the central bank will focus on ensuring effective transmission of policy cuts, expanding credit flows via co-lending mechanisms, and fine-tuning regulations for gold loans and securitisation of stressed assets. For now, Governor Malhotra has signalled that the RBI stands ready to deploy additional measures if external shocks intensify or if domestic demand fails to gain traction. The latest policy decision, therefore, serves as both a stimulus for a slowing economy and an insurance policy against unfolding uncertainties in the global arena. We continue to anticipate another rate cut of 25bps in the upcoming June meeting.