Monetary Policy Committee Shifts Stance to ‘Accommodative’ as Inflation Remains Benign
In a widely anticipated decision aimed at supporting India’s economic growth amid mounting global trade pressures, the Reserve Bank of India’s Monetary Policy Committee (MPC) on April 9 slashed the benchmark repo rate by 25 basis points, bringing it down from 6.25% to 6.00%. RBI Governor Sanjay Malhotra also announced a shift in the policy stance from “neutral” to “accommodative,” citing subdued inflation and increasing downside risks from rising global tariffs.
Alongside the rate cut, the Standing Deposit Facility (SDF) rate was adjusted to 5.75%, while the Marginal Standing Facility (MSF) rate and Bank Rate were revised to 6.25%, in line with the new policy direction.
Repo Rate cut: Reduced by 25 bps to 6.00%
SDF Rate: Adjusted to 5.75%
MSF and Bank Rate: Set at 6.25%
Policy Stance: Shifted from neutral to accommodative
Decision: Unanimously approved by MPC members
RBI Governor Malhotra: Rising Tariffs Pose Threat to Net Exports and Domestic Growth
In his post-policy statement, Governor Sanjay Malhotra underscored the emerging threat posed by heightened global protectionism, particularly after the United States implemented sweeping tariffs of up to 104% on Chinese imports. Malhotra warned that India’s net exports would be negatively impacted, with the spillover effects of trade frictions expected to drag on domestic economic momentum.
He noted that uncertainty itself was proving to be a headwind, affecting business sentiment and investment decisions, and that the RBI’s policy easing aimed to provide a buffer against external volatility while ensuring inflation remained within target.
Trade frictions likely to dampen global and domestic growth
Higher tariffs to impact India’s net export performance
Uncertainty cited as a major economic drag
Policy action intended to counter external shocks
Inflation Outlook Softens Further, Strengthening Case for Easing
The RBI’s revised projections reflect a softening inflation trajectory, reinforcing the central bank’s rationale for easing interest rates. The Consumer Price Index (CPI) inflation for FY26 has been revised lower to 4.0% from 4.2% earlier. Q1FY26 inflation is forecast at just 3.6%, marking a significant decline from earlier projections, with subsequent quarters expected to stay well below the RBI’s 4.5% threshold.
The inflation moderation, combined with signs of weakening external demand, provides the RBI ample headroom for further accommodation, should global risks deepen.
FY26 CPI Inflation revised from 4.2% to 4.0%
Q1FY26 forecast lowered sharply to 3.6%
Q2–Q4FY26 projected between 3.8–4.4%
Inflation remains well below RBI’s medium-term target
GDP Growth Outlook Revised Lower to 6.5% Amid Tariff-Induced Risks
While domestic activity continues to show signs of resilience, the RBI has trimmed its real GDP growth projection for FY26 to 6.5% from 6.7% earlier. Quarterly estimates for Q1 and Q2 have also been revised downward, indicating a cautious outlook amid rising global economic headwinds.
Malhotra mentioned that manufacturing activity and investment are witnessing revival, but also acknowledged that rising global tariffs and trade uncertainty may restrain India’s export-driven sectors in the coming quarters.
FY26 GDP growth revised to 6.5% from 6.7%
Q1–Q2FY26 growth forecasts lowered to 6.5% and 6.7%
Q3FY26 estimate held steady at 6.6%
Q4FY26 revised to 6.3%
Real Estate and Consumption Sectors to Gain from Lower Rates, But Transmission Crucial
Industry experts welcomed the rate cut, especially from the real estate sector, which stands to benefit from lower home loan interest rates. The move is expected to boost demand across affordable and premium housing segments, and ease financing costs for developers.
However, economists caution that the effectiveness of the rate cut will depend on how swiftly banks pass on the benefit to consumers. Efficient transmission is critical to reviving consumption, particularly in the context of urban discretionary spending and investment appetite.
Lower interest rates may drive housing demand
Developers to benefit from reduced project financing costs
Rate cut likely to support urban consumption recovery
Effective transmission by banks remains key concern
New Regulatory Announcements on Securitisation and Lending Against Gold
Governor Malhotra also announced new regulatory initiatives aimed at enhancing credit availability and stress resolution. These include:
A market-based mechanism for securitisation of stressed assets, allowing more efficient risk transfer and capital recovery.
Clarification that loans secured by gold, when issued by regulated entities, will now be permitted for onward lending by both banks and NBFCs, increasing liquidity in the gold loan segment.
These measures aim to strengthen the financial ecosystem’s ability to absorb shocks, enhance capital flows, and support small borrowers facing temporary stress.
Global Policy Environment Reflects Coordinated Easing Trend
In line with India’s policy shift, the Reserve Bank of New Zealand also cut its benchmark interest rate by 25 basis points to 3.50% on April 9. The move marks the fifth consecutive rate cut by the RBNZ since August 2024 and highlights a broader global monetary easing cycle, triggered by the adverse impact of trade disputes and softening global demand.
The RBI’s decision places it among a growing number of central banks proactively responding to deteriorating external conditions, with a focus on safeguarding domestic growth and inflation targets.
Market Reaction Mixed as Rate Cut Meets Global Risk Aversion
Indian stock markets opened lower on April 9, with benchmark indices reacting more to global tariff worries than the rate cut. The Nifty 50 fell by 144.90 points to 22,390.95, while the Sensex dropped 442.59 points to 73,784.49 at the opening bell.
Market breadth remained mixed, as investors balanced domestic easing with concerns about global trade tensions, especially following the U.S. tariff escalation.
Sensex down 442 points, Nifty falls 145 points
Rate cut fails to offset negative global cues
Trade tensions, earnings outlook drive investor caution
Mixed breadth reflects uncertain short-term sentiment
