In a measured but telling move, the Reserve Bank of India (RBI) has again lowered the repo rate by 25 basis points, bringing it down to 6 per cent, in its first bi-monthly monetary policy review for the financial year 2025–26. This marks the second rate cut in a row and is backed by the central bank’s intention to adopt an accommodative stance amidst rising global economic turbulence. The Monetary Policy Committee (MPC), in a show of unanimity, voted 6-0 in favour of the rate cut—a clear indication of the consensus on the need to support a domestic economy bracing against external headwinds. The immediate context for this rate reduction lies in the global shocks emanating from a sharp escalation in trade tensions. The recent imposition of a 26 per cent reciprocal tariff by the United States on Indian imports—coming into effect on April 9—has further exacerbated the already fragile global trade landscape. This development is not only expected to hurt India's net exports but also inject a fresh layer of uncertainty into investment and consumption decisions. RBI Governor Sanjay Malhotra’s acknowledgment of the “anxious note” on which the financial year has begun is a sobering reminder that India is not insulated from the spillover effects of global policy shocks.
In response to these disruptions, the RBI has downgraded its real GDP growth forecast for FY26 from 6.7 per cent to 6.5 per cent. While the drop may appear marginal, it reflects the central bank’s growing concern about the likely drag on exports and investment from ongoing global frictions. Nonetheless, the projection assumes relatively strong performances in agriculture—buoyed by good reservoir levels—and a nascent but encouraging revival in manufacturing and services. Urban consumption, aided by healthier bank and corporate balance sheets and improving capacity utilisation, also continues to underpin domestic demand.
What makes the RBI’s stance notably pragmatic is its focus on macroeconomic stability without losing sight of long-term growth. Inflation is projected to moderate to 4 per cent—a revision from the earlier 4.2 per cent—a development attributed to a sharp fall in food prices and benign commodity trends. However, the central bank has warned of a two-sided risk: a depreciating rupee and rising imported inflation on one end, and global slowdown-induced softness in crude and other commodity prices on the other. In such a complex matrix, the RBI's decision to cut rates while retaining a vigilant outlook on inflation reflects a delicate balancing act.
Apart from the monetary policy measures, the RBI has proposed a slew of regulatory reforms with long-term implications. These include reviewing guidelines on lending against gold, expanding the co-lending framework, and increasing UPI transaction limits for person-to-merchant payments. These incremental steps, though technical in nature, are aimed at enhancing credit accessibility, deepening digital financial inclusion, and improving regulatory clarity in evolving sectors. Together, they characterise a central bank that is not just firefighting near-term crises, but also preparing the financial system for the structural shifts underway. To its credit, the RBI has chosen clarity over complacency. The shift to an "accommodative" stance—meaning the MPC will now consider only rate cuts or holding rates steady—sends a strong signal that the central bank is ready to support growth proactively. However, this support has limits. Rate cuts alone cannot fully compensate for external shocks or weak global demand. The onus now lies equally on the government to manage trade relations with agility and ensure that fiscal policy complements the RBI’s monetary easing.