RBI's bold rate cut signals shift toward growth amid economic headwinds

The Reserve Bank of India (RBI) has slashed its key policy rate by 50 basis points, accompanied by a 100 basis points reduction in the cash reserve ratio (CRR). This aggressive monetary easing is a bold signal aimed at revitalizing India's growth trajectory in the face of global uncertainties and domestic sluggishness.

- Tirthankar Mitra

This move underscores a significant shift in the central bank's priorities—clearly indicating that it now perceives the risks of economic stagnation as more pressing than those of inflation. The policy change comes at a rare moment when both inflation and credit demand are subdued, presenting a narrow but valuable window for action.

Retail inflation has fallen to a six-year low of 3.16% in April, and with core inflation also remaining muted, policymakers have seized the opportunity to stimulate the economy. The fact that inflation is expected to remain below the RBI's medium-term target of 4% lent further justification to a front-loaded rate cut.