RBI Cuts Policy Rate by 25bps, Maintains Neutral Stance

Varahi media.com online news, February 8th,2025: In a bid to support economic growth, the Reserve Bank of India (RBI) reduced the policy rate by 25 basis points, shifting its focus away from

Varahi media.com online news, February 8th,2025: In a bid to support economic growth, the Reserve Bank of India (RBI) reduced the policy rate by 25 basis points, shifting its focus away from strict inflation control.

Governor Shaktikanta Das underscored the “flexibility” in the inflation targeting framework, signaling a deviation from the central bank’s earlier commitment to achieving the 4% median inflation target.

Despite the rate cut, the Monetary Policy Committee (MPC) retained a neutral stance, indicating a cautious approach to future rate reductions. This suggests that while the RBI remains committed to ensuring adequate liquidity, it is refraining from excessive monetary easing.

Liquidity constraints are expected to persist in the near term, particularly towards the end of the month and fiscal year due to advance tax outflows. The central bank is likely to address this through liquidity infusion measures, including open market operations (OMOs), buy/sell swaps, and longer-duration repos.

The RBI expressed confidence in the disinflation process, projecting an average inflation rate of 4.2% for FY26, while economic growth is estimated at 6.7%—aligning with the upper range of the Economic Survey’s forecast of 6.3-6.8%.

On the regulatory front, the governor highlighted a balanced approach to new policies, weighing both benefits and costs. However, there was no clarity on the timeline for implementing the new Liquidity Coverage Ratio (LCR) norms.

Looking ahead, economists anticipate another 25bps rate cut in the April policy. Further rate adjustments will depend on evolving domestic and global economic conditions.

— Sakshi Gupta, Principal Economist, HDFC Bank