RBI shifts from neutral to accommodative stance, focuses on increasing money supply, liquidity, borrowing & consumer demand

The apex bank's move to reduce the repo rate by 25 basis points to 6 per cent and change its stance from neutral to accommodative signals a sharp shift towards growth support for the Indian economy.

- RITWIK MUKHERJEE

With inflation exhibiting signs of moderation even as food prices have exhibited some stickiness, the central bank appears comfortable enough to ease policy without compromising its inflation mandate.

It is expected that liquidity measures will follow to enable easing in the banking system and help with credit growth on a sustained basis.

Though the GDP growth estimate has been reduced modestly to 6.5 per cent due to headwinds from the rest of the world, including increases in tariffs, domestic demand remains strong.

This policy shift could boost sentiment in the bond market but particularly for long-duration bonds.

There are apprehensions related to global trade tensions.

The cut in rate can put pressure on the rupee, particularly if global capital flows prefer higher-yielding instruments.

From a broader sense, the RBI strategy is that of a tricky balancing act, speaking of threats to inflation yet preparing the economy for potential overseas shocks.