Rate cut cycle will likely continue; efficacy remains uncertain still

Because India’s economy restores significant FY25 instability only to start FY26, with further escalation of global uncertainty, the discussions of RBI monetary policy will be closely monitored by policy signals.

MPC Views in February, when MPC decided to pass without a universe, indicate clear movement to support economic growth. Since then, inflationary concerns have come back later, and the predicted inflation trajectory remains favorable during the next seven to eight months.

As MPC concentration is moving from inflation concerns to support growth, inflation in the lower headline opens the policy area to reduce the policy area. In addition, a title at the level of inflation is now than 4%, the real interest rate in the economy is currently operating at more than 2.25%, it is good for India to 1.4-1.9%. From this point of view, the real interest rate in the economy stimulates the growth impulses. The recent MPC’s ministers show that one of the members claims that the rate of repo of politics may soon become extremely limited, increasing the risk of damage to growth signals. Thus, policy interest rates should be transferred to 50-75 BPS to bring real interest rates within neutral borders.

From the internal point of view, therefore, there is a need, and a policy of reducing the interest rates of 25 BP next week and follow the end of the year. The world background, however, remains uncertain. The tariff statements on the day of the liberation day by the US President later intensified global uncertainties.

The 10% tariff of all countries and the interval tariffs from 180 countries are well expecting expectations of the primary market. The use of two-sided deficiency, foreign exchange manipulation and non-tariff barriers to assess the tariffs we face makes it difficult to measure the level of failure. It can potentially respond to different countries and transform global trade flows.

The potential impact on India’s economic parameters, such as exports and growth, will be uncertain for all this tariff and trade uncertainty to resolve. As RBI calibizes the answers to monetary policy to change the geopolitical dynamics, it would be reasonable to continue its neutral position.

The real question facing MPC is not if they need to cut the interest rate in April, but how deep the current rate will be reduced by the interior and global challenges. The terminal interest rate for the cut cycle, which RBI began on February 25, the current economic conditions of the major unknown and MPC.

Another challenge facing MPC when they meet next week is to increase the efficiency of policy levels. Any decision: low interest rates must reduce loan costs, incentive investment and consumer assistance to high interest rates on loans. However, liquidity must be positive in a meaningful way so that the exchange rate is transferred.

In the banking system, liquidity was deficit from December 20 to 2024, despite the various measures to import long-term liquidity in the system. While we expect that the liquidity funds of RBIs will continue at the beginning of FY26, we expect RBI to reduce the transfer and loan costs.

In general, MPC will most likely continue to cut interest rates, and at the April MP meeting, a repo rate will fall with another 25 BG. RBI is likely to continue with DOVISH policy tone and liquidity. Any signal, stable liquidity infusion and terminal policy level, will be an extra bonus.

The author is the main economist, economic issues, L & T Finance Ltd.

The views expressed by the expert are his own.

L & T Finance Ltd. (LTF)

L & T Finance Ltd. (LTF) (www.ltfinance.com), which is previously known as L & T Finance Holdings Ltd., leading non-bank financial company (NBFC), offering a number of financial products and services. It was installed in Mumbai, the company has been assessed by “AAA” – the highest credit rating for NBFCS by four leading rating agencies.