Repo Raga: Will Rate Cuts Support Domestic Economy?

The Reserve Bank of India (RBI) has reduced the repo rate – the rate at which banks borrow from the central bank- by 25 basis points from 6.25 per cent to 6 per cent. The central bank has also shifted its policy stance to “accommodative” from neutral. With the rise in trade war following US President Donald Trump’s reciprocal tariff policy, the focus for Indian policymakers is now on domestic consumption. The fall in crude oil prices and forecast of a normal monsoon will help in keeping inflation in control, giving the RBI some elbow room to take necessary action as and when required to cushion the economy. The RBI has also slashed domestic growth projections from 6.7 per cent to 6.5 per cent for 2025-26. With inflation under control, it is expected to remain in check, thanks to the falling global crude prices and the expectation of a normal monsoon, the RBI will have the required elbow room to take more proactive measures in the coming months.