Another rate cut, and hope for more

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) unanimously reduced the policy repo rate by another 25 basis points (bps) in its three-day meeting ended April 9—in its second successive 25-bp cut.

- Aastha Gudwani

While a lowering of the rate was widely expected, the unanimous change in stance from 'neutral' to 'accommodative' took us by surprise. After all, as recently as in the February 7 policy meeting, the RBI governor had justified keeping a 'neutral' stance on account of excessive volatility in global financial markets, and global trade uncertainties. Given that such uncertainties had only heightened further since, the change in stance was indeed unexpected.

An 'accommodative' stance effectively means, in the absence of any further shocks, the MPC is considering only two options—a rate cut or a pause. The governor went to great lengths to clarify that the stance should thus be seen as a guidance of policy rate path, and not be directly associated with liquidity conditions.