A rate cut by the Reserve Bank of India on April 9 is only logical, but beyond the move on that day, the signal and messaging from the governor will be keenly watched.
Here is what it looks like at this point: with headline inflation comfortably moderating and growth momentum still underperforming, the Reserve Bank of India or RBI is left with little choice but to cut rates again.
Recent data underscores that the days of battling runaway inflation are behind us. With CPI inflation now hovering around 3.6% - lowest in seven months - and food inflation trending downward thanks to an unprecedented drop in vegetable prices, RBI’s longstanding inflation target of 4% isn’t just a distant dream, it’s closer to reality.
Yet, while inflation retreats, economic growth continues to limp along below its potential. Q3FY25 growth saw a modest rebound to 6.2% from 5.6% in Q2FY25, yet these numbers are a far cry from the robust performance that the economy is capable of delivering. The muted recovery in growth is symptomatic of deeper structural issues - lingering global uncertainties, reciprocal tariff threats, and geopolitical tensions - are smothering domestic demand. In such an environment, waiting on the sidelines is not an option.
The evidence is mounting that the RBI’s primary mandate has transformed from quelling inflation to turbocharging growth. The current policy landscape demands decisive action, one that would result in a continuation of the rate-cutting cycle that began in February, with another 25 basis point reduction in the repo rate at the upcoming April meeting.
Critics may point to the global economic volatility and the risk of imported inflation as reasons for caution, however, when domestic inflation is well under control, the real risk lies in stifling economic momentum. The RBI’s commitment to maintaining a neutral stance amidst external headwinds is nothing more than a thinly veiled excuse to delay necessary stimulus. With liquidity conditions still in deficit despite multiple interventions, it’s clear that tighter monetary conditions are only serving to choke off the credit flow that businesses desperately need, to spur investment.
The time for half-measures is over, and the RBI must decisively embrace a dovish stance and cut rates further, not only to alleviate the credit crunch but to send a strong signal that growth is the new priority. A proactive rate cut is not just desirable, but it’s also essential if India is to regain its footing in an increasingly competitive global landscape. The indicators don’t lie: controlled inflation, improving - but insufficient - growth, and persistently tight liquidity, all point to one inevitable conclusion, that the RBI’s next move should be bold, assertive, and unmistakably dovish.
To sum up, another rate cut is not merely a policy adjustment, it’s a necessary catalyst for a broader economic revival. The writing is on the wall, and another RBI rate cut is on the way, and the time for decisive action is now.
(Banking Central is a weekly column that keeps a close watch on and connects the dots regarding the sector's most important events for readers.)
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