The RBI published the Monetary Policy Committee minutes of the scheduled meeting on Feb 7th, which saw a 25 bps rate cut backed by all 6 MPC members
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The RBI published the Monetary Policy Committee minutes of the scheduled meeting on Feb 7th, that saw a 25 bps rate cut backed by all 6 MPC members (for details, see – RBI Policy: Rate easing commences, Feb 7, 2025). At a broader level there was perceived comfort from the projected decline in FY26 CPI inflation and prioritizing of macro-stability in the FY26 Union Budget. Given this backdrop, the MPC now appears in favour of nudging growth higher, while keeping an eye on global spillover risks. We believe that the MPC, after pivoting in Feb-25, will opt for additional 25 bps rate cut in the next policy review in Apr-25. Thie anticipated shallow rate easing cycle could conclude thereafter. However, economic and financial market uncertainty is extremely elevated at the current juncture on account of known-unknown geopolitical and geoeconomic risks. The policy response in such an environment needs to be nimble, depending upon the interplay of global stagflation and slowdown risks. In the interim, the RBI needs to maximize support from the shallow rate easing cycle by ensuring ample liquidity. This calls for core money market liquidity to be in surplus (in the vicinity of 1% of NDTL) compared to a deficit of -0.1% currently, to boost the monetary policy transmission.