In a bold policy shift, the Reserve Bank of India (RBI) slashed the repo rate by 50 basis points to 5.50%—a deeper cut than the widely anticipated 25 bps reduction. The move comes against a backdrop of global economic fragility and softening domestic demand.
Addressing the media following the Monetary Policy Committee (MPC) meeting, RBI Governor Sanjay Malhotra acknowledged the “fragile and highly fluid” global environment but reaffirmed confidence in India’s resilience, stating that the country continues to offer “immense opportunities” for investors.
Market analysts had largely forecast a more modest reduction. A recent report by Nuvama had anticipated a 25 bps cut, citing waning demand indicators such as subdued credit growth, declining auto sales, sluggish real estate transactions, and softening household wages. Inflation has also remained below the 4% mark on a three-month moving average basis at both headline and core levels.
Nuvama projected that the repo rate could gradually ease to a range of 5%–5.25% during the current monetary cycle. The report also pointed to a favourable balance of payments, a softening US dollar, and easing liquidity conditions. However, it cautioned that the pace of demand recovery may remain tepid due to fiscal constraints and uncertain export trends.
The rupee, meanwhile, showed early signs of weakness ahead of the policy announcement. The one-month non-deliverable forward suggested an opening range of 85.86–85.90, slightly weaker than Thursday’s close of 85.79.
The unexpected magnitude of the rate cut is likely to be closely watched by global markets, especially with the U.S. jobs report due later today, which may provide further clarity on the Federal Reserve’s policy stance.
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