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 cognisance 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.