The RBI Monetary Policy Committee (MPC) unanimously voted to reduce the policy repo rate by 25 basis points from 6.25% to 6.00%. The MPC also changed the policy stance to ‘accommodative’ from ‘neutral’.

The MPC noted a decisive improvement in the inflation outlook, with increased confidence in the durable alignment of headline inflation with the 4% target. However, economic growth remains in a recovery phase, constrained by a challenging global environment and heightened uncertainties arising from increased global volatility.

The RBI projected CPI inflation at 4.0% YoY for FY26, down from the 4.2% YoY projection in the previous policy meeting. The outlook for food inflation has turned decisively positive, with a broad-based seasonal correction in vegetable prices. The fall in crude oil prices augurs well for the inflation outlook. The sharp decline in inflation expectations for the three-month and one-year ahead periods would also help anchor inflation expectations. However, adverse weather-related supply disruptions pose upside risks to the inflation trajectory.

The RBI projected GDP growth at 6.5% YoY for FY26, down from 6.7% YoY in its previous estimate. Agricultural prospects appear bright, industrial activity continues to recover, and the services sector is expected to remain resilient. However, the evolving global economic landscape, which is currently marked by high uncertainty, is likely to weigh on merchandise exports.

We expect the RBI to cut rates by another 25 bps in the June 2025 policy. Additionally, we expect the RBI to maintain surplus liquidity conditions to improve the transmission of rate cuts to credit and deposit markets.

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