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RBI goes pro-growth with policy

ICICIdirect Research 11 Apr 2025 DISCLAIMER

RBI cut Repo rates by 25bps to 6.0% and changed the stance to ‘accommodative’ from ‘neutral’. “Accommodative” stance means that the next rate decision will be either a status quo or a rate-cut. However, the tone of the policy signalled that we are likely to witness a further rate cut in June policy meeting as well.

Domestic Growth will need more support: RBI has revised down its domestic growth estimates to 6.5% for FY26 from earlier estimates of 6.7%. Street expectations are much lower and ranging between 6-6.3%. Therefore, it is imperative to expect growth supportive monetary policy measures in such evolving global dynamics. The same was reflected in the policy language and change in stance.

Inflation trajectory to soften further: RBI has revised down its inflation projection to 4% from earlier projected at 4.2% for FY26. RBI highlighted that the tariff war to be disinflationary for India. This along with falling crude prices and normal monsoon will ensure low risk to this 4% inflation projection.

Liquidity: While RBI has not announced any additional liquidity measure in the policy, the Governor indicated in its post policy conference that they will ensure liquidity remain in surplus to the tune of 1% of NDTL translating into Rs 2 lakh crore. Therefore structurally we are moving into an effective rate below Repo rate. (In tight liquidity conditions, call money rates hover between Repo rate and MSF rate while in surplus liquidity, call money rates hover between Repo rate and SDF rate which is 25bps lower than Repo rate).

Market Reaction: 10-Year bond yield was down 5bps to 6.45% from 6.50%. Short term yields (3-6 months bank CDs and T-bills) were down 10-13bps. In last 1-month: 1-Yr Bank CD rate is down 80bps (7.6% to 6.8%) while 10-Year G-Sec is down 25bps (6.7% to 6.45%)

Market Expectation: Debt market now expect another 50bps rate cut with Repo rate moving down to 5.5%.

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