RBI Having Cut Repo Rate, Banks Should Pass The Benefit To Industry

Keeping in mind the rise in global headwinds and challenges that followed US President Donald Trump's reciprocal tariff policy, the RBI also changed the policy stance to “accommodative” from "neutral". 

"Our stance provides policy rate guidance without any direct guidance on liquidity management," Sanjay Malhotra, Governor, RBI said. The foreign exchange reserves currently stand at US$ 676 billion. 

This is the second reduction in repo rate this year.

In February too, the RBI reduced the key policy rate by 25 basis points, taking the cumulative reduction in repo rate in 2025 to 50 basis points.

However, captains of India Inc said the reduction in policy rates needs to be passed on to the end customers, which will then cushion growth. With geoeconomic risks rising, India’s policymakers will now have to rely more on domestic consumption and investments to support economic growth. 

According to the RBI, despite volatility in the short term, India’s growth trajectory for the medium to long term remains strong. “With solid forex reserves and expectations of a normal monsoon, India is better placed to handle the outside challenges,” State Bank of India’s Chief Economist Soumya Kanti Ghosh told The Secretariat. 

Positives For India

The fall in commodity prices, including crude oil, is somewhat of a relief for the RBI, as it is expected to keep inflation in check. That apart, the recent prediction of a normal monsoon has also provided the required cheer to the industry. 

The headline inflation measured by consumer price index (CPI) in February fell to 3.61 per cent — a seven-month low and below the RBI’s medium target of 4 per cent.

India, however, needs to be watchful as the intense trade war between the US and China could lead to increased inflow of cheaper goods from Beijing into the domestic market. 

Notwithstanding the RBI move, Sensex and Nifty -- the two benchmark indices traded lower on Wednesday, clearly driven by the downward revision for India's growth forecast besides the external factors and trade risks.

India is hoping to conclude the Bilateral Trade Agreement with the US by the year-end. “The impact of the tariff will be offset with the trade agreement. We need to see how things shape up in the next few months. A few sectors many even gain, considering that tariffs set on many other Asian countries are significantly higher than ours,” Ajay Sahai, director general and CEO, Federation of Indian Export Organisations (FIEO) said.

What Stakeholders Say

As reported earlier by The Secretariat, despite risks and challenges posed by the Covid pandemic and the Russia-Ukraine war leading to supply chain disruptions and price shocks, the RBI monetary policy measures have managed to strike an overall balance between growth and inflation. 

The Engineering Export Promotion Council (EEPC) said that the industry, especially micro, small and medium enterprises (MSME) exporters, needs constant monetary as well as fiscal policy support.

"The growing external challenges could lead to inventory piling up and order book decline for the engineering exports sector,"  Pankaj Chadha, Partner and CEO, Jyoti Steel Industries and chairman, EEPC said, adding that this would have a ripple effect in terms of fewer job creations and lower forex earnings.

"The RBI has equipped the Indian economy with helmet (liquidity), bat and other accessories (interest rate cut) and pep talk (change of stance to accommodation), so that it can play on a green top wicket in a cold and cloudy (geoeconomic and political environment) morning against the seaming, fast and unpredictable bowling of President Trump,” Nilesh Shah, MD, Kotak Mahindra AMC said in a statement.

 “This is the best a coach can do. Now, the players have to play it out, so that we can score runs when the weather clears and pitch eases,” he said. 

Watch this insightful video about the reduced repo rates : https://thesecretariat.in/article/repo-raga-can-rate-cuts-get-india-a-growth-spree