New Delhi, Feb 8 : India’s monetary policy has been on an easing path over the past few months. Experts believe that since rate cuts take time to impact the economy, a forward-looking approach is necessary to ensure their effectiveness.
In October 2024, the Reserve Bank of India (RBI) changed its stance from “withdrawal of accommodation” to a “neutral” approach. This shift was followed by a 50 basis point (bps) reduction in the Cash Reserve Ratio (CRR) in December, multiple liquidity-support measures in January, and a 25 bps cut in the repo rate in February 2025.
“We interpret the neutral stance as the RBI’s intention to take a cautious and measured approach to future repo rate adjustments,” said Mittal, an industry expert. He attributed this to changing global dynamics, especially the expectation of fewer rate cuts by the US Federal Reserve in 2025.
The neutral stance suggests that various factors—including Q3 FY25 GDP data, global market conditions, currency fluctuations, crude oil prices, and potential March heat waves—will influence the RBI’s decisions leading up to April.
“We expect a 50 bps rate-cutting cycle,” Mittal said, adding that liquidity will play an increasingly important role in supporting growth.
In a significant relief for banks, RBI Governor Sanjay Malhotra announced that the implementation of the proposed Liquidity Coverage Ratio (LCR) and project financing norms would be postponed by a year. These regulations will not be enforced before March 31, 2026, and their implementation will be phased.
“A key announcement for banks was the deferral of LCR guidelines, which will now begin no earlier than April 1, 2026,” said Mittal. The RBI also stated that additional time is needed to finalize project financing norms and expected credit loss regulations.
Ajay Kumar Srivastava, Managing Director and CEO of Indian Overseas Bank, welcomed the policy adjustments. “With inflation expected to moderate further in FY26 and GDP growth projected at 6.7 percent, we believe this rate cut will stimulate investment and consumer demand, driving economic momentum,” he said.
He also praised the RBI’s focus on enhancing digital security across the banking and payments ecosystem, calling it a vital step in safeguarding the financial sector.( With inputs from IANS)