RBI’s 25 bps rate cut to boost growth as inflation stays low: Economists

Mumbai: The Reserve Bank of India’s decision to cut the repo rate by 25 basis points on Friday received a strong positive response from economists, who believe the move will support growth at a time when inflation is at exceptionally low levels.

Experts said the policy action, along with the liquidity measures announced, shows that the central bank wants to use the current window of low inflation to strengthen economic momentum.

Rajani Sinha, Chief Economist at CareEdge Ratings, said the rate cut and the decision to maintain a neutral stance were in line with expectations.

She noted that the RBI has taken advantage of the current phase of very low inflation to give a push to growth.

“The liquidity-boosting steps will help smoothen the transmission of rate cuts already announced,” Sinha mentioned.

Dharmakirti Joshi, Chief Economist at Crisil, said the MPC’s decision matches their expectations as well.

He pointed out that the economy has surprised positively on both growth and inflation this year, giving the central bank enough room to ease rates.

“Retail inflation has fallen sharply, driven mainly by lower food prices, while core inflation has also cooled. The rate cut will support growth in the next fiscal year because monetary policy works with a lag,” Joshi explained.

Madhavi Arora, Chief Economist at Emkay Global Financial Services, said persistent undershooting of inflation made it difficult for the RBI to delay a rate cut any further.

She noted that the RBI has also upgraded growth projections, signalling confidence in the economy’s resilience.

“The liquidity infusion of about Rs 1.45 lakh crore through open market operations and forex swaps will help improve transmission of the rate cut,” Arora stated.

She also said the weakness in the rupee should not be seen as a barrier to further easing, but as a natural stabiliser during the economic cycle.

IANS