RBI Cuts Policy Rate by 25bps to Support Growth: HDFC Bank

Ahmedabad : The Reserve Bank of India (RBI) has decided to cut the policy rate by 25 basis points (bps) in its latest credit policy announcement, prioritizing economic growth while maintaining a cautious stance on inflation control. The Monetary Policy Committee (MPC) retained a neutral stance, signaling that further rate cuts in this cycle will be carefully assessed.

According to Sakshi Gupta, Principal Economist at HDFC Bank, the RBI’s decision reflects a shift in its inflation-growth trade-off, leaning towards growth support. This is evident from Governor Shaktikanta Das’s emphasis on the “flexibility” in the inflation target framework, a departure from the previous focus on achieving a strict 4% inflation target.

Despite the rate cut, the RBI has refrained from providing excessive liquidity to the system. While liquidity support will be available, pressures are expected to persist, particularly towards the financial year-end due to advance tax outflows. The central bank is likely to counterbalance these pressures through Open Market Operations (OMOs), buy/sell swaps, and longer-duration repos.

The RBI remains confident in the disinflation process, forecasting an average inflation rate of 4.2% in FY26, while GDP growth is projected at 6.7%. This growth estimate aligns with the upper range of the economic survey’s forecast of 6.3%-6.8% for FY26.

A more balanced approach to regulatory changes was also highlighted, though clarity on the implementation of the new Liquidity Coverage Ratio (LCR) norms remains absent.

Looking ahead, the RBI is expected to frontload rate cuts, with another 25bps reduction anticipated in the April policy review. However, the scope for further cuts will depend on both domestic and global economic conditions.