RBI Did Its Bit: Now It's for Fiscal and Trade Policies to Do the Rest

The central bank's rate cut will help our economy absorb the US tariff blow but we also need a forceful government response

- SACHCHIDANAND SHUKLA

It may just be a coincidence that the Reserve Bank of India (RBI) announced the rate-cut decision of its Monetary Policy Committee (MPC) on 9 April, the day that the US imposed 'reciprocal tariffs': i.e., additional ad-valorem import duties at higher-than-baseline rates aimed at a group of targeted countries, including India. Yet, this global backdrop loomed large over RBI's policy call as India's central bank rightly persisted with 'more of the same'. It continued to lean towards nurturing growth. It cut the repo rate again by 25 basis points to 6%, having delivered its first rate cut since May 2020 in its last policy review two months earlier. In the period since, it has also continued to pour liquidity into the system through a cash reserve ratio cut, open market operations, variable repo rate auctions and swaps, while going soft on macro-prudential tightening.

What else has RBI done? It has finally changed its stance from "neutral" to "accommodative," accompanied by a clarification from Governor Sanjay Malhotra that this should be seen only in conjunction with rates and not be confused with its approach to liquidity management. This reaffirms that its next move will only be either another rate cut or the status quo, whereas the earlier stance implied that RBI could also hike its policy rate, which is now very unlikely. This will provide much-needed clarity for policy transmission, so that bank deposit and lending rates also soften.