RBI Poised for Status Quo: 25 bps Cut Would Be Positive Surprise, Says Expert

The Reserve Bank of India (RBI) is widely anticipated to keep the policy rate steady in the forthcoming Monetary Policy Committee (MPC) meeting. However, a rate cut of 25 basis points could be a positive surprise, according to Sonal Badhan, an economist at Bank of Baroda. Speaking to ANI, Badhan noted that such a cut would likely leave the GDP forecast for FY26 unchanged, as the effects of monetary policy moves typically take two to three quarters to manifest fully in the real economy.

Even if the RBI opts for a modest rate cut, GDP forecasts for FY26 are unlikely to shift. Badhan highlighted that the central bank's commentary could adopt a dovish tone, suggesting a potential 50 basis points reduction in the RBI's inflation projection for FY26. Such adjustments could provide relief to bond yields, although the stance is likely to remain 'neutral.' Earlier this year, the RBI had already front-loaded a 100 bps cut, the effects of which are now see. Steady gains in lending rates and marginal recovery in credit growth are evident from recent data. Additionally, fiscal policy, including a revival in public spending and respite from GST, is bolstering domestic growth.

External and domestic factors are also expected to play a role in the RBI's approach. Badhan pointed out that ongoing trade deal negotiations between the US and India could influence the central bank's decision to maintain the status quo. Domestically, the GST cut supports consumption demand, with potential benefits for inflation, prompting the RBI to hold rates as it assesses the impact on festive demand and GDP growth. Badhan underscored that the RBI has compelling reasons to keep policy rates unchanged for now, yet a 25 bps cut remains a welcome possibility. RBI Governor Sanjay Malhotra will announce the outcome of the meeting on Wednesday at 10 AM.

(With inputs from agencies.)