QuantEco Research || RBI Policy - In a neutral territory
Download ReportQuantEco Research || RBI Policy - In a neutral territory
The Monetary Policy Committee of the RBI announced a 25 bps reduction in the repo rate to 5.25% post its scheduled meeting today, while retaining its ‘neutral’ policy stance. In addition, the RBI announced provision of durable liquidity of Rs 1 tn via OMO purchases and an additional USD 5 bn via a 3Y FX Swap. The central bank revised up its FY26 GDP growth forecast by 50 bps to 7.3%, while pruning its CPI inflation forecast by 60 bps to 2.0%. This ‘Goldilocks’ projection convinced the MPC to lean on the side of incremental accommodation despite a recent pickup in INR weakness. Assuming the impasse over US tariffs will settle soon, we believe the ex ante real policy rate is now getting into neutral territory. This implies the likelihood of a prolonged pause in monetary policy, although the door for further easing could remain open. However, space exists for pushing through additional primary liquidity. This should be supportive of the bond market sentiment. We maintain our call for a moderation in the 10Y g-sec yield to 6.30% (with some upside risk) for Mar-26.