Repo Rate Cut Not Ideal Yet. Rely On Surplus Liquidity, Operation Twist

A rate cut is unlikely to stimulate investment growth amid uncertainties

- Soumyajit Niyogi

The upcoming monetary policy is crucial for several reasons, given the environment and uncertain outlook making the selection of policy tools critical. A repo rate cut, if it were to happen, will need to take cognizance of the impact on the rupee, given the narrowing rate differential between the US and India. Furthermore, increasing financialization of the economy has intensified the interplay between macro-micro and financial market, heightening the risk to financial market stability. A liquidity infusion and operation twist may be more effective than only relying on the repo rate.

An analysis of 3,444 listed companies' HIFY25 results reveals flat-to-moderate revenue growth, a moderating trend in operating margins, and a resilient credit risk profile. Revenue pressures have primarily arisen from reduced pricing power, global influences on exports, normalization of post-pandemic demand, and a slowdown in urban consumption. While falling general price levels have impacted top line growth, the correction in key raw material prices has helped margins for companies facing demand disruptions.