India’s central bank delivered an outsized cut to its benchmark policy rate, bringing it to 5.5% from 6%, its lowest level since August 2022.
This also marks a third straight rate cut since February, and comes below the median estimates of 5.75% in a Reuters poll.
However, the central bank held its full-year GDP estimate at 6.5%, marking a sharp slowdown compared to the 9.2% seen in the previous financial year, which ended in March.
However, the central bank will still need to remain watchful of weather-related uncertainties and the evolving tariff-related concerns with their impact on global commodity prices, Malhotra added.
Given the outsized cut in the policy rate, the RBI said that there is limited room for monetary policy to support growth, and will change its monetary policy stance to “neutral” from “accommodative.”
The benchmark policy rate in India was significantly lowered by the central bank, falling from 6% to 5%, the lowest since August 2022.
In addition to falling short of the median estimates of 5.75 percent in a Reuters poll, this is the third consecutive rate cut since February.
During a livestream, RBI Governor Sanjay Malhotra stated that the decision was made because growth has been “lower than our aspirations amidst a challenging global environment and heightened uncertainty” and inflation has significantly decreased. “..”.
The decision was made in response to a better-than-expected GDP growth figure in its fiscal fourth quarter, which showed the economy growing 7 percent year over year as opposed to the 6 percent predicted by Reuters polled economists.
In contrast, the central bank maintained its full-year GDP estimate at 6.5 percent, which represents a significant slowdown from the 9 percent recorded in the previous fiscal year, which concluded in March.
“There are many opportunities, stability, and strength in the Indian economy,” Malhotra stated.
In its prior meetings, the RBI had brought up growth concerns in light of the possibility of US tariffs.
Additionally, the RBI has the authority to lower rates because India’s inflation is mainly declining at the time of the decision.
The headline inflation rate for April was 3 points 16 percent, which was the lowest since July 2019.
Inflation may fall short of the target, according to Malhorta, who also noted that the RBI had lowered its previous inflation outlook from 4 percent to 3 percent for the current fiscal year.
According to him, the majority of forecasts indicate that the prices of important commodities, such as crude oil, will continue to moderate.
Malhotra continued, “The central bank will still need to be on the lookout for weather-related uncertainties and the changing tariff-related concerns with their impact on global commodity prices.”.
The RBI stated that it will shift its monetary policy stance from “accommodative” to “neutral” due to the excessive reduction in the policy rate, adding that there is little space for monetary policy to support growth. “.”.
The RBI governor stated, “The [Monetary Policy Committee] will be closely evaluating the incoming data and the changing outlook from this point on to map out the future course of monetary policy in order to strike the right growth-inflation balance.”.
