The Report captures the motivations behind the first policy rate cut of the current cycle, which comes after two years. Expounding the heightened focus on growth it comments that the growth-inflation dynamic has changed. Towards this, the RBI has made use of multiple tools at its disposal – going beyond rate cuts into deferral of proposed banking sector norms such as LCR, project finance provisions, and ECL. This will help systemic liquidity in a time when RBI is constrained owing to forex pressures to always offer overwhelming surfeits. Even so, the outlook for FY26 remains peppered with concerns, particularly on the external sector. Inflation, which is set to be on a declining path helped by improved food supply, is also on the radar. As are global uncertainties. All these prompted the MPC to keep the stance at “Neutral”, indicating nimbleness to respond with two-sided actions. The Report argues this could lead to a more gradual rate cut path.
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