Governor highlighted that this growth projection comes after a strong performance of 9.2 per cent growth recorded in the previous financial year, 2024-25
Mumbai:With inflation risks ebbing, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday shifted its focus on supporting domestic economic growth, which faces heightened risks following the heavy tariffs imposed by the US and cut the benchmark
repo rate by 25 basis points to 6 per cent. The six-member MPC voted unanimously to cut rates and change the stance from “neutral” to
“accommodative” in the first meeting of the fiscal 2025-26 signaling more rate cuts during the year. This was the second consecutive rate
cut from the RBI. The move lowers borrowing costs to the lowest level since November 2022. Lower interest rates help spur growth as loans are expected to become cheaper.
In the February monetary policy, the RBI MPC had reduced the benchmark repo rate by 25 bps to 6.25 per cent from 6.5 per cent delivering the
first rate cut in nearly five years.
Speaking to reporters at the monetary policy press conference, Sanjay Malhotra, governor RBI invoked a Mahabharat reference when asked about the extent to which monetary policy would need to support economic growth in the current global economic uncertainty.
“I am Sanjay, but not the Sanjay of Mahabharat to be able to foresee that far," said the Governor, referring to the mythological figure Sanjay, who was believed to possess divine sight. However, he pointed out that monetary policy and fiscal policy are acting in tandem to meet the growth-inflation targets. "It is a joint effort... the government has done its bit in the Budget recently by taking a large number of measures in terms of the increased capex, tax rebates and we have reduced repo rate and changed the stance going forward, which means that the direction of the policy repo rate is downwards.”
The central bank, however, lowered its India GDP growth forecast for this financial year to 6.5 per cent from 6.7 per cent reflecting the impact of global trade and policy uncertainties. Malhotra also said India was better placed to handle US President Donald Trump’s reciprocal tariffs since the domestic industry’s dependence on US exports was smaller than that of other nations.
The US has announced a 26 per cent reciprocal tax on India, which is more than two and a half times of the existing average tariff gap. Markets are coming around the view that these tariffs will not only dampen activity in the exporting nations but also hurt the US outlook.
The US is India’s largest export market, with its share in India’s exports at around 18 per cent, amounting to 2.2 per cent of GDP in FY24.
The MPC also revised the CPI inflation forecast for the financial year 2025-26 by 20 basis points to 4 per cent on falling crude oil prices and robust kharif arrivals. Malhotra also assured that the RBI will maintain sufficient liquidity for speedier rate cut transmission.
