RBI Rate Cut Expected as Inflation Eases and Liquidity Returns
Why in the news
With the Fed, the Bank of England and China’s central bank pausing, attention turned to the RBI, whose policy meeting was due that week amid trade-war worries.
Key facts
- Last RBI move: 25 bps cut in February 2025; another 25 bps cut appeared imminent.
- Stance: likely to remain neutral so the RBI keeps flexibility; June could bring a cut or a pause.
- Governor: Malhotra has actively used liquidity tools to help rate cuts pass through.
- GDP: FY25 at 6.4% (NSO estimate); FY26 at 6.7% (RBI projection).
Global central banks
| Bank | Position |
|---|---|
| US Fed | Held at 4.25-4.5%, second straight pause after three 2024 cuts; two more cuts expected in 2025 |
| Bank of England | Held at 4.5%; gradual downward path |
| People’s Bank of China | Paused after its October 2024 cut |
Domestic indicators
| Indicator | Reading |
|---|---|
| CPI inflation | 3.61% in February (4.31% in January); March seen near 3.5% |
| FY25 inflation | About 4.6% vs RBI’s 4.8% estimate |
| Rupee | Rose from ₹87.59 in February to ₹85.23 in April |
| 10-year bond yield | Down from 6.7% to 6.47% |
| Liquidity | Surplus of ₹2.16 trillion; 14-day VRR auctions stopped |
Liquidity tools used
- Long-term VRR auctions: ₹1.83 trillion.
- OMOs: ₹2.5 trillion done, ₹80,000 crore more planned by 29 April.
- $25 billion three-year buy-sell forex swap, injecting ₹2.15 trillion.
Other emerging markets
Australia, Indonesia, New Zealand, South Korea, Taiwan and Thailand had begun easing; most cut 25 bps, New Zealand 50 bps.
Exam angle
- Terms: repo rate, VRR (variable rate repo), OMO, buy-sell swap.
- Stance: neutral.
- Rate cut size: 25 basis points.