<p class="bodytext">It was widely expected that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) would cut interest rates by 25 basis points at its first meeting in the current financial year on Wednesday. There was even a view that the Committee might go in for a bigger rate reduction. The MPC has unanimously decided to slash the rate by 25 basis points and changed the policy stance from neutral to accommodative. The change of stance means that there is no possibility of raising the rate soon. By implementing the changes, the RBI has made it clear that its focus would now be on economic growth. This is the second consecutive rate cut after a similar rate reduction in February. Governor Sanjay Malhotra’s statement, which explained the change in policy stance, also indicated that the central bank was not ruling out more rate cuts going forward. With the cut, loan repayment instalments might get cheaper and banks and financial institutions can borrow funds from the RBI at a lower cost. Cheaper credit can promote economic activity and growth.</p>.Tariff hike necessary, now improve services.<p class="bodytext">The changes were made in the context of the tariff war unleashed by President Donald Trump and its likely impact on the world’s and the country’s economy. The MPC resolution has brought down the GDP growth forecast for 2025-26 from the 6.7% made in February to 6.5%, because of trade friction and its impact on investment and spending decisions. But even this may be an optimistic estimate. The Governor’s statement mentions several “known unknowns” such as ongoing trade talks with the US, the impact of tariff changes on exports, and the price elasticity of Indian exports. Any assessment of these factors would be premature and a safe approach would be to expect a scenario worse than being foreseen now. Though Trump has paused the tariff hike for all countries other than China for 90 days, the world is still not off the hook. The uncertainty will continue to influence the financial decisions of all countries. The continuation of the US tariff war on China will itself impact the overall global financial scenario.</p>.<p class="bodytext">The inflation rate has come down and the RBI has lowered its projection for the current year from 4.2% to 4%. It might go down further. That might facilitate further rate reductions in the future, but that will also depend on the global scenario. Though rupee depreciation will benefit India to some extent, it could fuel inflation.</p>
<p class="bodytext">It was widely expected that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) would cut interest rates by 25 basis points at its first meeting in the current financial year on Wednesday. There was even a view that the Committee might go in for a bigger rate reduction. The MPC has unanimously decided to slash the rate by 25 basis points and changed the policy stance from neutral to accommodative. The change of stance means that there is no possibility of raising the rate soon. By implementing the changes, the RBI has made it clear that its focus would now be on economic growth. This is the second consecutive rate cut after a similar rate reduction in February. Governor Sanjay Malhotra’s statement, which explained the change in policy stance, also indicated that the central bank was not ruling out more rate cuts going forward. With the cut, loan repayment instalments might get cheaper and banks and financial institutions can borrow funds from the RBI at a lower cost. Cheaper credit can promote economic activity and growth.</p>.Tariff hike necessary, now improve services.<p class="bodytext">The changes were made in the context of the tariff war unleashed by President Donald Trump and its likely impact on the world’s and the country’s economy. The MPC resolution has brought down the GDP growth forecast for 2025-26 from the 6.7% made in February to 6.5%, because of trade friction and its impact on investment and spending decisions. But even this may be an optimistic estimate. The Governor’s statement mentions several “known unknowns” such as ongoing trade talks with the US, the impact of tariff changes on exports, and the price elasticity of Indian exports. Any assessment of these factors would be premature and a safe approach would be to expect a scenario worse than being foreseen now. Though Trump has paused the tariff hike for all countries other than China for 90 days, the world is still not off the hook. The uncertainty will continue to influence the financial decisions of all countries. The continuation of the US tariff war on China will itself impact the overall global financial scenario.</p>.<p class="bodytext">The inflation rate has come down and the RBI has lowered its projection for the current year from 4.2% to 4%. It might go down further. That might facilitate further rate reductions in the future, but that will also depend on the global scenario. Though rupee depreciation will benefit India to some extent, it could fuel inflation.</p>
