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Kolkata: The Reserve Bank of India not only completed its widely expected rate cut hattrick but also delivered a jumbo cut of 50 basis points with governor Sanjay Malhotra saying that a sharply moderating retail inflation and a continued focus of growth has enabled the Monetary Policy Committee to take this step. The measure that was announced on Friday morning stoked expectation for continuous slashing of lending rates by banks and NBFCs on all sorts of loans for the consumer but also boosted hopes for adding momentum to the growth rates, boosting aggregate consumption and generation of employment for the policymakers.

“The Indian economy is progressing well on both the inflation and growth front,” remarked Malhotra. The focus was on domestic growth amid sustained external sector uncertainty said Malhotra indicating the geopolitical tensions and the flux in the global trade scenario. There is no tussle between price stability and growth in the near and medium term,” he added. However, after slashing the Repo Rate from 6,50% to 5.5% between February and June, the stance of the RBI has been switched from accommodative to neutral. The central bank will strictly monitor every piece of income economic data to take any fresh decision on the policy rate, the RBI boss said.

Outlook on inflation

Noting price stability in the near and medium term, a better-than-normal southwest monsoon and robust crop performance, the RBI boss mentioned a downward revision of the CPI-based inflation forecast for the current fiscal from 4% to 3.7%. Disaggregating the inflation figure, he said the inflation footprint in various quarters could be 3.9% in Q1, 3.4% in Q2, 3.9% in Q3 and 4.4% in Q4. He also mentioned how retail inflation declined to 3.2%, which was a 69-month low.

He also expressed the hope that the kharif and Rabi crop (especially the wheat and pulses output) have been robust and would help keep prices in check. Food inflation was exhibiting a downward trend for the past six months. he also mentioned the moderating price of crude oil. Incidentally, the crude oil prices are a concern both for the inflation managers as well as the forex manager since it is the most expensive item on India’s import bill.

• In this connection is it significant to mention that earlier this week a note by SBI Research report had said the central bank might go for a jumbo rate cut of 50 basis points. “We expect a 50-basis point rate cut in June’25 policy as a large rate cut could reinvigorate a credit cycle… Cumulative rate cut over the cycle could be 100 basis points,” wrote SBI Research Report earlier this week. Explaining its expectation, SBI Research said, “Domestic liquidity and financial stability concerns have receded. Inflation is expected to stay within tolerance band. Keeping the domestic growth momentum intact should be the main policy focus and provides the justification of a jumbo rate cut.” On the topic of inflation, it also mentioned:
• CPI inflation may come down to 2.9% in Q1 FY26 as food inflation is expected to be within the target in June quarter
• Above normal monsoon prediction by IMD, strong arrival of crops and decline in crude oil prices revising down our CPI estimate to ~3.5% in FY26 with a downward bias
• Core inflation may come at 3.7% to 3.8 % in FY26
• Till Dec 25, headline inflation will be on downward trajectory but may increase thereafter

GDP outlook

Malhotra indicated that he would have liked to see a faster rise of the GDP. He pegged the GDP growth forecast at 6.5% in FY26. Breaking it up between quarters, he said GDP would grow at 6.5% in Q1, 6.7% in Q2, 6.6% in Q3 and 6.3% in Q4. The RBI governor made it clear that the one big uncertainty looming in the horizon were mostly from the external sector — the continuing geo=political crisis and the trade- uncertainty, thanks to the tariff measures by US president Donald Trump.

The healthy balance sheets of banks and corporates, the strong government finances, the strong exports by the services sector and industrial activity which showed early signs of inching up were causes of the hope for the central bank officials. he also mentioned about a possible revival of demand in the rural sector following a good monsoon and agricultural output.