The Reserve Bank of India’s(RBI) Monetary Policy Committee (MPC) has cut Repo rate by 50 bps, significantly higher than estimates. The big change is the stance adopted by RBI. The Reserve Bank has now changed its stance to ‘Neutral.’ Food inflation outlook soft and core inflation outlook benign. The inflation outlook for the year has been revised downwards to 3.7%. GDP growth seen lower amidst global challenges.
Early beginning of Monsoon positive, but global uncertainty continues, said RBI. “Global growth and trade projections have been revised downward. Growth-inflation trade-off becoming more challenging,” explained RBI Governor Sanjay Malhotra. He added that Financial Stability is a big challenge amidst global spillover and tech challenges posed by AI and other innovations.
PD Singh, CEO, India & South Asia, Standard Chartered Bank, said, “The MPC pleasantly surprised markets with a 50 bp repo rate cut and a 100bp CRR cut on the back of benign inflation. The additional liquidity coupled with lower interest rates should temper borrowing costs and boost economic growth. The move will also bolster the economy from uncertainties around tariffs, geopolitical issues etc. Rural demand is likely to pick up on the back of a good monsoon outlook.”
“The RBI has made a clear and decisive call to propel economic growth, deploying all key policy levers in a bold and timely manner. By front-loading a 50 basis point repo rate cut and infusing durable liquidity through a 100 basis point CRR reduction, the RBI has demonstrated its commitment to ensuring effective monetary transmission. With inflation softening, liquidity conditions comfortable, and financial stability intact across banks, NBFCs, and corporates, the macroeconomic environment is ripe for sustained growth. The shift to a neutral policy stance signals that while further rate cuts may be limited, the current policy remains sufficiently accommodative. As the Governor rightly emphasized, price stability alone is not enough — a supportive policy framework is essential in uncertain times to nurture growth and build economic momentum” Said Shanti Ekambaram, Deputy Managing Director, Kotak Mahindra Bank
Indranil Pan, Chief Economist, Yes Bank, said, “There were surprises all the way in this policy – a frontloading of rate cuts with a 50 bps cut in this policy, a change of stance back to “neutral” from “accommodative”, and a CRR cut of 100 bps starting fortnight of September 6th in equal doses of 25 bps each.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said “The higher than expected Repo rate cut comes along with a shift in the stance back to neutral. This clearly points towards future decisions being more data dependant given the significant global uncertainties. Furthermore, the sharp drop in CRR is likely to keep liquidity conditions suitably comfortable to ensure monetary transmission.”
Coming back to the inflation trajectory, clearly inflation has been undershooting the target level of 4% and inflation expectations as has been set out by the RBI points to a 3.2% average for Q1-Q2 of FY26, while moving higher in H2FY26 to an average of 4.2%. This sharp difference in inflation between the two halves provided RBI the room to afford the frontloading of the rate cuts.
However, the change of stance to “neutral” implied that most of the firepower that the RBI had has been already expended and space for further monetary policy becomes limited, with the future course of policy to be data driven.”
“The RBI has made a clear and decisive call to propel economic growth, deploying all key policy levers in a bold and timely manner. By front-loading a 50 basis point repo rate cut and infusing durable liquidity through a 100 basis point CRR reduction, the RBI has demonstrated its commitment to ensuring effective monetary transmission. With inflation softening, liquidity conditions comfortable, and financial stability intact across banks, NBFCs, and corporates, the macroeconomic environment is ripe for sustained growth. The shift to a neutral policy stance signals that while further rate cuts may be limited, the current policy remains sufficiently accommodative. As the Governor rightly emphasized, price stability alone is not enough — a supportive policy framework is essential in uncertain times to nurture growth and build economic momentum.” said Manish Kothari, Group President and Head – Commercial Banking
