Synopsis
Experts suggest that the RBI is adopting a cautious approach toward future repo rate decisions as India’s monetary policy continues to ease. Key economic indicators will play a significant role in shaping these decisions.Key Takeaways
- The RBI is transitioning to a neutral stance.
- Expectations of a 50bps rate cutting cycle.
- Implementation of LCR guidelines delayed until April 2026.
- Inflation is expected to moderate, boosting economic momentum.
- Focus on enhancing digital security in the banking sector.
New Delhi, Feb 8 (NationPress) The monetary policy landscape in India has been easing over the past few months. As rate cuts have a lagged effect, it is prudent to adopt a forward-looking approach for the monetary policy to effectively influence the real economy, according to experts.
The policy shift in October transitioned to a neutral stance (compared to the previous withdrawal of accommodation). This was succeeded by a 50bps reduction in the Cash Reserve Ratio (CRR) in December, a range of liquidity enhancement measures in January, and a 25bps repo rate cut in February 2025.
“We view the neutral stance as the RBI's intention to proceed with extreme caution regarding future repo rate adjustments, particularly in light of evolving global conditions, where the US Federal Reserve has significantly scaled back the magnitude of anticipated rate cuts in 2025,” stated Mittal.
The neutral stance signifies that factors influencing the economy from now until April—including Q3 FY25 GDP data, global developments, currency fluctuations, crude oil prices, and March heat waves—will be pivotal.
“We are forecasting a 50bps rate cutting cycle,” Mittal noted, emphasizing that liquidity will play a considerably larger role.
In a significant relief for banks, RBI Governor Sanjay Malhotra declared that the rollout of the proposed Liquidity Coverage Ratio (LCR) and project financing guidelines will be postponed by one year and will not take effect before March 31, 2026.
“A major announcement for banks pertains to the delay in LCR guidelines, now set for implementation no sooner than April 1, 2026, to be executed in a phased manner,” Mittal added.
Moreover, the RBI indicated that additional time will be required to finalize project financing norms and expected credit loss regulations.
Ajay Kumar Srivastava, Managing Director and CEO of Indian Overseas Bank, noted that with inflation projected to moderate further in FY26 and GDP growth anticipated at 6.7 percent, “we believe this rate cut will invigorate the economy and stimulate investment and consumer demand, fostering overall economic momentum.”
“We also commend the RBI's emphasis on improving digital security in the banking and payments ecosystem,” he further stated.
