After a gap of two years, the Monetary Policy Committee of the RBI made its first rate adjustment, by reducing the repo rate by 25 bps to 6.25%, while retaining the ‘neutral’ policy stance
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After a gap of two years, the Monetary Policy Committee of the RBI made its first rate adjustment, by reducing the repo rate by 25 bps to 6.25%, while retaining the ‘neutral’ policy stance. This is the first repo rate cut by the MPC after May-20. The central bank projects a moderate improvement in GDP growth from 6.4% in FY25 to 6.7% in FY26. At the same time, it expects CPI inflation to moderate from 4.8% in FY25 to 4.2% in FY26, the lowest in the post-COVID phase. A comforting inflation trajectory, which is also where the fiscal policy effort lies via its quantitative and qualitative adjustments, created an opportunity for upfronting monetary policy easing. Although the MPC has retained its neutral monetary policy stance to retain nimbleness to calibrate policy response amidst heightened global uncertainties, we expect the next policy review in Apr-25 to see another 25 bps rate cut. For now, we maintain our call for a shallow rate easing cycle of 50 bps and expect the MPC to get into a pause mode thereafter. Any further rate cuts would be contingent upon deterioration of the growth outlook (not our base case). While we continue to remain bullish on Indian bonds, we now fine-tune our g-sec yield forecast for Mar-25 to 6.60% from 6.50% earlier and for Mar-26 to 6.40% from 6.25% earlier.