Moneycontrol Pro Weekender | Sanjay Malhotra fires his bazooka

What Malhotra is doing is seizing the moment, before inflation raises its head again.

Dear Reader, 

The highlight of the week for us, apart from the ever-entertaining shenanigans of the Trump regime, was the big monetary stimulus, which took almost everybody by surprise. RBI governor Sanjay Malhotra, head of the rate-setting Monetary Policy Committee, justified his 50-basis point rate cut by saying that it made for certainty. The simple explanation was provided in a report by Soumya Kanti Ghosh, SBI Group Chief Economic Adviser, one of the few to have predicted a 50-basis point rate cut. He said the ‘jumbo rate cut could act as a counterbalance to uncertainty’, adding that ‘global uncertainty is increasing’.

Simply put, given the current heightened uncertainties in trade and geopolitics, the big rate cut is meant to counter that by boosting the domestic economy. Abhilash Narayan, Investment Strategist at HSBC Global Private Banking and Wealth, wrote that domestic resilience would underpin equities’ outperformance in H2 2025.

For good measure, the RBI governor also made certain that there would be abundant liquidity by his 100-basis point cut in the cash reserve ratio. That would ensure swift transmission of the rate cuts by the banking sector, boosting growth rapidly.

It’s curious, though, that while the RBI governor said the prospects for the Indian economy remain good, he has kept the projections of GDP growth unchanged from the April MPC meeting, at 6.5 percent. Even the quarterly growth forecasts for FY26 are the same. Does this mean that, in spite of the Governor firing his bazooka, growth will still be 6.5 percent?

In his note, SBI’s Ghosh had pointed to risk aversion as reflected in increasing cash and bank balance of India Inc. and said, ‘revival in capital formation may not see sustained propulsion’. Non-food credit growth has slipped. As my colleague Neha Dave wrote, ‘Both these factors – weaker private capex and muted urban consumption – are reflected in the banking system’s credit growth that has fallen to below 10% as of 16th May….As a broad-based and durable consumption recovery is increasingly critical for a revival in the private capex cycle, RBI has delivered a bumper rate cut and liquidity boost that in turn will increase credit offtake.’

A note by DBS Bank says, ‘this step to frontload easing measures is likely a pre-emptive move to arrest further slowdown in economic activity.’ The RBI’s latest urban consumer confidence survey shows that the Current Situation Index, which measures current consumer sentiment, is still below 100, signalling pessimism. The Rural Consumer Confidence Survey is marginally more upbeat, at 100, a neutral level. In short, consumption growth seems to be a problem.

On the other hand, Governor Malhotra has talked about ‘propelling growth to a higher aspirational trajectory.’ That seems to be at variance with keeping the GDP forecast at 6.5 percent.

Why frontload the cuts? The reason, of course, is that inflation is currently remarkably well-behaved. So are inflation expectations, with the RBI survey showing a clear downturn for one year ahead median inflation expectations. Note though that the RBI’s projection for Q4, FY26, has been retained at 4.4 percent, well above the current rate. What Malhotra is doing is seizing the moment, before inflation raises its head again. As a note by Barclays points out, ‘The months of May-July typically show high seasonal variance in inflation with particularly volatile vegetable prices. Given the high volatility in vegetable prices in the past two years during these months coupled with persistent supply driven inflation in staples means that the window for the MPC to ease could potentially close soon.’

These concerns could also be the reason for the MPC to revert to a neutral stance. As my colleague Dinesh Unnikrishnan wrote, ‘the key message is clear: the RBI is poised to pause, watch, and respond, balancing bold action with prudent caution.’

What of the future? Governor Malhotra said, "after having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, monetary policy is left with very limited space to support growth". But Gaurav Kapur, chief economist at IndusInd Bank, wrote that, ‘Even with a neutral policy stance, there is still space for another 25 bps cut in the Repo rate, considering that the real Repo rate now is around 1.80 percent.’ If growth falters, further support may well happen.

What then should investors do? Anurag Mittal, Head of Fixed Income at UTI AMC, wrote , ‘the 1-3 year Government or Corporate bond segment represent the optimal positioning zone where surplus liquidity conditions and deployment needs intersect.’ As for equities, Moneycontrol Research has a list of sectors and stocks that will benefit from the outsized monetary stimulus.

Cheers,

Manas Chakravarty 

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

HAL, Why focus on a company catering to US healthcare outsourcing? Weekly tactical pick, EIH, SG Mart, Can a stationery brand drive growth beyond its core strength?Engineers India, Voltas, Sundaram Finance, Fiem Industries, Mazagon Dock, Lemon Tree Hotels, Ion Exchange, IRCTC, Mrs Bectors Food Specialities, PG Electroplast, HEG, China’s curbs on rare earth magnets: Risk or rare opportunity for auto stocks?,

Markets

Nifty at 25,000 by year-end: BofA Securities flags 9 drivers of growth, 7 emerging risks to markets

Are retail traders biting off more than they can chew?

Do you have the gut to be a trader?

Financial Times

Martin Wolf: Interest rates are normal, the world is not

The case for a Fed rate cut

We have ‘surrendered more to the machines’, says quant fund titan Cliff Asness

How to break China’s stranglehold on critical minerals

Ruchir Sharma: The world’s strongest currency is also super-competitive

Big Four firms race to develop audits for AI products

Panama port owner’s deal fuels fears of dominance by world’s top shipping group

Companies & sectors

Vietnam’s Vinfast entry to fuel battle for EV supremacy in India

Why Trump will continue to see red on steel imports

Rural demand, exports drive auto industry growth despite slowdown in some segments

EPC firms see margin pressure despite stable revenue growth

Is Trump’s doubling of steel and aluminium tariffs a death blow to the industry?

The risks Exide, Amara Raja face in transition to Li-ion batteries

Private hospitals are making bold expansion plans

MedPlus’s generic drug push is yielding tangible benefits

The transformation at dairy companies

Despite continued reliefs Vodafone Idea has been unable to stabilise

Economy & Policy

What the FY25 GDP data tell us about long-term changes in the Indian economy

Why RBI must tread with caution on the gold loan rules

Is there an import itch in robust GST numbers?

India’s EV incentive scheme: Incumbents brace for competition

OECD: India set for modest growth, limited easing while global risks rise

Is WTO looking at India to redeem itself?

Pro Economic Tracker

Geopolitics & Geoeconomics

How to prepare for the future of warfare with unmanned vehicles

China, Yunus, and the Crisis in Dhaka: Why India’s next move on Hasina matters

Tech & Startups

Inside Dell’s ‘decentralised’ AI Future: How the Dell AI Factory is gearing up to capture enterprise demand

AI innovation pace not slowing; real-world impact becoming clearer: Snowflake's Sridhar Ramaswamy

Politics

Will Shashi Tharoor leave Congress? Tensions rise ahead of Kerala 2026 elections

Personal Finance

Indian HNIs’ financial planning gaps exposed amid rising market volatility, finds Marcellus–D&B Wealth Survey

Investing for tax saving is now passe

Others

GuruSpeak| From classroom to candlesticks: How Gaurav Rakhonde became a full-time trader

Curing this costly addiction seems near impossible, regulating it is the next best option