RBI's 25 basis points rate cut, change of monetary stance to ‘accommodative’ timely move, say experts

FPJ News Service MUMBAi

The Reserve Bank of India (RBI) on Wednesday brought down the country’s GDP growth projections for the current fiscal year by 20 basis points from 6.7% in the February policy to 6.5%. 

“This downward revision essentially reflects the impact of global trade and policy uncertainties. The real GDP growth for 2025-26 is now projected at 6.5%, with Q1 at 6.5%; Q2 at 6.7%; Q3 at 6.6%; and Q4 at 6.3%. While the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of the recent spike in global volatility,” RBI Governor Sanjay Malhotra announced here after the MPC’s first meeting of FY26.

Global trade tensions and the reciprocal tariffs announced by the US are the key reasons for the interest rate cut. While the risks are evenly balanced around the baseline projections of GDP growth, uncertainties remain high in the wake of the recent spurt in global volatility.  The new fiscal year has begun on an anxious note for the global economy. Some of the concerns on trade frictions are coming true, unsettling the global community. 

First and foremost, uncertainty in itself dampens growth by affecting investment and spending decisions of businesses and households. Second, the dent on global growth due to trade frictions will impede domestic growth. Third, higher tariffs shall have a negative impact on net exports. 

“There are, however, several known unknowns-the impact of relative tariffs, the elasticities of our export and import demand; and the policy measures adopted by the government including the proposed Foreign Trade Agreement with the US, to name a few. These make the quantification of the adverse impact difficult. 

“The Indian economy has made steady progress towards the goals of price stability and sustained growth. On the inflation front, while the sharper-than-expected decline in food inflation has given us comfort and confidence, we remain vigilant to the possible risks from global uncertainties and weather disturbances, RBI added.

“Growth is improving after a weak performance in the first half of the financial year 2024-25, although it still remains lower than what we aspire for.” Real GDP is estimated to grow at 6.5% in 2024-25 on top of a 9.2 per cent growth rate observed in the previous year. In 2025-26, prospects of agriculture sector remain bright on the back of healthy reservoir levels and robust crop production.