RBI's MPC meet starts on Monday amid expectations of a policy rate cut

The meeting of the six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) will start on Monday — the first in the current financial year — amid expectations of another 25 basis points (bps) cut in the policy repo rate though there are outside chances of a higher rate reduction.

 

Also, focus will be on liquidity-related measures to boost transmission of policy rates to bank lending and deposit rates.

 

The central bank had a series of meetings with bankers in the run up to the policy, for feedback on the liquidity framework.

 

A revised liquidity framework is also on cards.

 

The April MPC meeting is in the backdrop of the reciprocal tariffs announced by US President Donald Trump last week, which is expected to impact domestic growth.

 

It is to be seen if the central bank now prioritises growth over inflation — which is expected to print below the target of 4 per cent for the next few months — by changing the stance to accommodative from neutral.

 

“We are tracking Q4 FY25 real GDP growth at 6.7 per cent year-on-year (Y-o-Y), implying average GDP growth of 6.2 per cent for FY25. If realised, this would be 30 bps lower than the Ministry of Statistics and Programme Implementation (MoSPI) and RBI's 6.5 per cent Y-o-Y forecast,” economists at Barclays said in a note. 

 

“As the RBI MPC is faced with inflation and growth outcomes that are below their estimated trajectory, it opens policy space to deliver a second successive policy repo rate cut… given the meaningful undershoot versus estimated CPI inflation, there is a strong case for the MPC to deliver a non-standard 35 bps cut,” the note said. 

 

Barclays base case for an April rate cut is 25 bps.

 

After infusing close to ₹8 trillion of durable liquidity between January and March, the central bank, in a surprise move, announced a ₹80,000-crore bond purchase programme through open market operations last week.

 

Sovereign bond yields plunged to their lowest levels in three years after the announcement.

 

The move was aimed at providing adequate liquidity to the banking system to ensure transmission of policy rates, just before a much-anticipated interest rate cut.

 

“We also expect RBI to keep the liquidity taps open, and the central bank has used its variable rate repo operations, bond purchases, and forward swaps to augment liquidity conditions,” Bank of America said in a report on the last week of March.

 

The six-member rate setting panel reduced the repo rate by 25 bps in February – a rate cut which came after almost five years. All members of the MPC unanimously voted for a rate reduction.

 

Last week, the government appointed noted economist Poonam Gupta, director general of economic think tank National Council of Applied Economic Research (NCAER), as one of the deputy governors of RBI. Gupta is likely to get the all-important monetary policy, among others. 

 

M Rajeshwar Rao, deputy governor in-charge of regulation, has been handling the department after Micheal Patra’s term ended in January.

 

The deputy governor in-charge of the monetary policy is also a part of the MPC. Rao will be a part of the April MPC too, as Gupta is yet to take charge.