RBI Monetary Policy Expected To Focus On India's Growth

While most analysts have projected a 25 per cent cut in policy rates, the central bank’s monetary policy roadmap will be key for supporting the domestic economic dynamics in the coming months. A possible recession in the US will have an impact on India’s growth trajectory. 

To support growth, the RBI is likely to change its stance from 'neutral' to ‘accommodative’. The MPC decision on interest rates and growth will be announced on Wednesday. 

The policy announcement will have a direct impact on India Inc, including the micro, small and medium enterprises (MSME) sector.

According to a report by Emkay Financial Services, the fluid global dynamics will require the RBI to be nimble in managing any risk of tighter financial conditions, especially as the shock to sentiment as well as capital flows is likely to require higher risk premia from emerging markets. “While the extent of trade war pain is unclear, monetary policy may have to do the heavy lifting in India,” it said. 

Though headline inflation, measured by the consumer price index (CPI), fell to a seven month-low of 3.61 per cent in February — below the RBI’s medium term target of 4 per cent — trade uncertainties will have an impact on capital and investment flows. 

The uncertainties on the global trade front will also impact exchange rates and currency values.

RBI’s Measures To Support Growth

That apart, RBI, which has already injected liquidity through open market operations (OMO) could further look at easing liquidity through other tools. In March this year, the RBI added Rs 1 lakh crore to the system through bond purchases.

In its February MPC meeting, the RBI reduced the repo rate by 25 basis points to 6.25 per cent.

This is RBI Governor Sanjay Malhotra’s second MPC meeting. The RBI MPC now has another new member — Poonam Gupta, Director General of National Council of Applied Economic Research, who was appointed as Deputy RBI Governor on April 2.

"We, at the Reserve Bank, remain fully prepared to meet all challenges and seize all opportunities, to contribute proactively and vigourously, to India's economic progress," Malhotra said earlier this month at the central bank's commemoration function.

In his earlier MPC meeting, Malhotra outlined rising uncertainties on global financial markets and the trade policy front, coupled with continuing risks of adverse weather events that pose risks to the inflation and growth outlook. 

Insiders said that going ahead, the RBI could further reduce rates to support domestic growth. 

Despite risks and challenges posed by the Covid pandemic and the Russia-Ukraine war, leading to supply chain disruptions and price shocks, RBI's monetary policy measures have so far managed to strike an overall balance between growth and inflation.

The Focus, Going Ahead

To offset the impact, sources said the government could announce fresh policies to boost manufacturing as part of its China Plus policy. 

Though the US tariff policy has hit our domestic industry, several industry captains indicated that India's impact could be limited. "We see a huge opportunity for India as we expect some manufacturing boost in the country. With the thrust on logistics, competitiveness will increase significantly for products manufactured in India," Jitendra Jog, Director (Asia-Pacific), Atlantis Logistics told The Secretariat.

India, with a 26 per cent tariff from the US, will look to conclude a proposed bilateral trade agreement (BTA) with Washington by the stipulated time-frame, while also diversifying markets. India's total exports to the US stood at about US$ 74 billion in 2024.

It is to be seen whether in this MPC announcement, the RBI revises India’s growth projections downward, amid the increase in global risks.