No Further Rate-Cut Likely For Next Few Policy Reviews

Enough is enough now and there is no further rate-cut in sight for next few bi-monthly policy reviews. With a 5-1 majority, the RBI frontloaded rate easing with a 50bps rate cut, along with primary liquidity infusion via a 100bps CRR cut, given Rs2.5trn liquidity infusion since September last. The RBI seems to have strategically optimized its actions at a time when there is relatively fair visibility on near-term domestic macro dynamics as well as relative global calm across emerging market asset classes.

These moves also imply that the focus is on quicker monetary transmission, thus somewhat putting the onus on banks. With the stance reverting to neutral from accommodative, Emkay sees no scope of rate cuts in the next few policy meetings.

Surpassing market expectations, the RBI delivered a bumper boost to the economy by easing the policy repo rate by 50bps to 5.5 per cent. Thus, the RBI has now eased rates by 100bps cumulatively since the start of the current easing cycle in February. This came alongside the stance being reverted to ‘neutral’ from ‘accommodative’, with the MPC indicating that with this frontloading, “monetary policy is left with very limited space to support growth”. Additionally, the MPC also cut the CRR by 100bps to 3 per cent, which will infuse Rs2.5trn of liquidity.

Inflation projections for FY26 saw a downward revision to 3.7 per cent, while the growth forecast has been retained at 6.5 per cent, with balanced risks. In terms of inflation, the MPC expressed optimism. Apropos the RBI Governor, “the war on inflation has been won, for now.” A healthy rabi harvest and a strong monsoon will keep food prices in check; this has already begun to moderate household inflation expectations.

Global dynamics are also currently supportive of lower commodity prices including crude oil, even as evolving tariff concerns may alter the current dynamics. Analysts see inflation easing to 3.4-3.5 per cent in FY26 with a downward bias.

The RBI has largely frontloaded most of its policy levers, which we think they have strategically optimized at a time when they have fair visibility of near-term domestic macro dynamics. Besides, relative global calm provides a good opportunity to decouple from the Fed’s rate cycle and focus on domestic dynamics than to wait and act in more uncertain and noisy periods. This also implies that their focus is on quicker monetary transmission of these front-loaded rate cuts. The change in stance also implies limited room for further easing, with policy reactions henceforth responding only to new shifts in domestic growth-inflation dynamics, global markets, and macro shocks.

Even as experts see no scope of further cuts in the near term, what with Ecowrap’s view of status quo in the next policy review, it will be pertinent to keep an eye on fluid global markets and the evolving domestic cycle, to be able to assess any room for additional easing.