RBI MPC Meet: Another Rate Cut Expected Amid Global Uncertainty

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is set to convene from April 7 to 9, with high expectations of another rate cut to support economic growth amidst rising global uncertainty. The upcoming meeting is crucial as it will influence India's financial landscape, particularly with the recent announcement of reciprocal tariffs by the United States.

Background: Recent Rate Cuts and Economic Conditions

In February 2025, the RBI's MPC, led by Governor Sanjay Malhotra, reduced the repo rate by 25 basis points to 6.25%, marking the first rate cut since May 2020. This decision was made in response to easing inflation and concerns about slowing economic growth. India's GDP grew by 6.2% in Q3 FY25, compared to 5.6% in Q2 FY25, indicating a moderate recovery but still below the third quarter of FY24's 8.6% growth[3][4].

Factors Supporting Another Rate Cut

Several factors suggest that another rate cut is likely:

• Inflation Control: India's retail inflation fell to a seven-month low of 3.61% in February, providing room for further rate cuts to stimulate growth without risking inflation[2][4].
• Global Economic Uncertainty: The recent tariff announcements by the US have introduced significant uncertainty into global markets. These tariffs could impact India's exports and economic growth, making monetary policy adjustments more critical[1][2].
• Liquidity Conditions: The banking system has faced liquidity deficits, which the RBI has tried to address through various interventions like variable rate repo (VRR) auctions and open market operations (OMOs)[3][4].

Impact of Reciprocal Tariffs

The imposition of reciprocal tariffs by the US adds a new layer of complexity to the RBI's decision-making process. While these tariffs pose challenges to export-oriented economies, they also present opportunities for India in certain sectors. For instance, higher duties on exports from countries like China and Vietnam could make Indian goods more competitive globally[2].

Expectations from the MPC Meeting

Key Expectations:

1. Repo Rate Cut: A 25 bps cut in the repo rate is widely anticipated, which would bring the rate to 6%. This reduction is expected to lower lending rates linked to external benchmarks, providing relief to borrowers[1][2].
2. Monetary Policy Stance: There is speculation about a potential shift in the monetary policy stance from neutral to accommodative, signaling further rate cuts in the future[1][3].
3. Inflation and Growth Forecasts: The RBI is unlikely to revise its inflation and growth projections significantly but will closely monitor the impact of global trade tensions on India's economy[1][4].

Industry and Economist Views

Industry experts and economists have diverse opinions on the impending policy decision:

• Gaura Sen Gupta, Chief Economist at IDFC First Bank, supports a 25 bps cut, citing easing inflation and growth conditions[1].
• Madan Sabnavis, Chief Economist at Bank of Baroda, suggests that an accommodative stance could signal more rate cuts, though the current liquidity conditions might limit the effectiveness of such cuts[2][3].
• Assocham recommends a cautious approach, emphasizing the need to let recent liquidity measures take effect before making further policy changes[2].

Conclusion and Future Outlook

The RBI's decision on April 9 will be pivotal, balancing growth objectives with inflation management. While a rate cut is likely, the RBI must also consider the ongoing challenges in liquidity transmission and the broader implications of global trade policies on India's economic trajectory.

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