MPC's Rate Cut: A Measured Debut Amid Uncertainty

Some expected steeper rate cut, more aggressive liquidity actions from RBI in this policy update

- Anurag Mittal

The Reserve Bank of India's (RBI) monetary policy committee (MPC) on Friday unanimously voted in favour of cutting the repo rate by 25 basis points to 6.25%, the first rate cut since May 2020. The monetary policy stance remains unchanged at "neutral".

The RBI also introduced forward contracts in government securities, allowing long-term investors such as insurance companies to manage their interest rate risk. The RBI also allowed non-bank brokers registered with the Securities and Exchange Board of India (Sebi) to access the RBI electronic trading platform for secondary market transactions.

The monetary policy was set against an interesting backdrop. The new US tariff policies have raised global trade tensions while the momentum of domestic growth has slowed. Urban consumption, the mainstay of private sector demand, has moderated due to the exhaustion of excess savings from the pandemic and tightening prudential norms for consumption-driven retail credit.