From Neutral to Accommodative? RBI Gears Up for Fresh Easing

India’s central bank, the Reserve Bank of India (RBI), is set to announce its monetary policy decision on April 9, 2025, following a three-day meeting of its Monetary Policy Committee (MPC). We  a further reduction in the benchmark repo rate, which currently stands at 6.25%, given a confluence of moderating inflation indicators and global economic headwinds. A 25-basis-point cut to 6.0% would mark the second consecutive easing move by the RBI since February 2025, reflecting the institution’s inclination to provide counter-cyclical support to an economy exhibiting slower growth momentum. In tandem with this action, we anticipate a possible shift in the monetary policy stance from “neutral” to “accommodative,” signalling the RBI’s readiness to employ additional measures should macroeconomic conditions warrant further stimulus.

Recent data underscore the rationale for a more accommodative tilt. Inflation receded to 3.61% in February 2025, comfortably below the RBI’s medium-term target of 4%. Importantly, food inflation witnessed a marked decline, with certain categories such as vegetables entering deflationary territory. Nonetheless, the MPC will remain alert to potential reemergence of price pressures, particularly if global supply-chain dislocations or weather-related events exert upward pressure on consumer costs.

At the same time, evidence of an economic deceleration has become increasingly apparent. India’s real GDP growth for Q3 FY25 stood at 6.2%, reflecting a notable slowdown from 8.6% growth rate recorded in FY24. This moderation has prompted policymakers to consider a more supportive monetary framework capable of stimulating investment and consumption. 

Compounding these domestic vulnerabilities are external pressures largely stemming from recent reciprocal tariffs imposed by the US on imports from India and other countries. While in certain niches these tariffs may limit competition for Indian exporters facing rivals from markets like China, they also expose the broader economy to the potential fallout of a deepening trade rift. Heightened uncertainties in global markets can unsettle capital flows, potentially exacerbating currency volatility and elevating financing costs for Indian firms reliant on external funding. The RBI must, therefore, weigh the benefits of promoting growth through monetary easing against the risks of eroding financial stability, particularly if turbulent global conditions prompt abrupt shifts in capital allocation.

Another critical factor is India’s limited fiscal space. The fiscal deficit target for FY26 is set at 4.4% of GDP, leaving the government with relatively little room for countercyclical spending should economic conditions deteriorate sharply. In the event of a more pronounced downturn, the burden of supporting growth could fall disproportionately on monetary policy, testing the central bank’s capacity to balance expansionary efforts with its mandate of preserving price stability.

Against this backdrop, Governor Sanjay Malhotra’s second major policy announcement for FY26 will serve as a litmus test for the RBI’s capacity to navigate delicate trade-offs. The monetary policy for the rest of the year will remain on this trajectory with another rate cut of 25bps in Q2.