The Monetary Policy Committee (MPC) of the RBI reduced the repo rate by 25 bps to 6.0% in its Apr-25 policy review, while shifting the stance from ‘neutral’ to ‘accommodative’. This followed the 25-bps cut announced in Feb-25, which marked the beginning of the ongoing rate easing cycle.

In particular,

• The rate cut decision was unanimous, backed by all members – in line with market expectation
• All the six MPC members also voted to change the stance from neutral to accommodative. However, it noted that the rapidly evolving situation requires continuous monitoring and assessment of the economic outlook.

Macroeconomic Outlook

RBI revised its FY26 growth forecast lower by 20 bps to 6.5%

• On a quarterly basis, RBI pruned growth estimate for Q1, Q2 and Q4 FY26 GDP by 20 bps, 30 bps and 20 bps each to 6.5%, 6.7%, and 6.3%, respectively.
• Growth for Q3 FY26 was revised up by 10 bps to 6.6%.

FY26 CPI inflation forecast was also lowered by 20 bps at 4.0% - indicating an alignment with the target. 

• On a quarterly basis, RBI expects CPI inflation to be below 4.0% in Q1, Q2 and Q3 FY26. Compared to Feb-25, the forecast for Q1 and Q2 was lowered by 90 bps and 10 bps each to 5.6% and 3.9% respectively. 
• Q3 FY26 CPI inflation forecast was retained at 3.8%.
• The forecast for Q4 FY26 was increased by 20 bps to 4.4%

Deep diving into key decisions

Since the last policy review in Feb-25, there have been key developments.

• On the domestic front, pressure on INR has receded, accompanied by a sizeable easing in domestic liquidity, owing to a slew of measures undertaken by the RBI
• In contrast, on the global front, economic and financial stability risks have come to the fore since the heightened actions by the US on tariffs. The imposition of higher-than-expected reciprocal tariffs (on 2nd Apr-25) on a whole host of economies that trade with the US, followed by a pause on this measure (announced on 9th Apr-25) for a period of 3 months except for China, has stoked a high degree of uncertainty. 

From a growth perspective, RBI cited three channels by way of which recent global trade and related policy uncertainties could impinge –

• Uncertainty dampens growth by affecting the investment and spending decisions of businesses and households.
• Downside to global growth owing to trade frictions.
• Higher tariffs having a beating on net exports.

Given that the global outlook remains seeped in uncertainty – both in terms of the announcements as well as the impact that they could exert, in a high trade-interlinked global economy, impact assessment remains difficult to fathom.

Looking beyond the 20-bps downward revision to growth owing to external factors, RBI continues to remain confident in domestic growth drivers of sustained rural demand, recovery in urban consumption, sustained push on government’s capital expenditure, and higher capacity utilisation amidst healthy balance sheets of corporates and banks.

From an inflation perspective, the sharp downward revision in Q1 FY26 CPI inflation is on account of lower-than-expected inflation in vegetable prices to continue well into FY26. Notably, the policy statement stated that the food inflation outlook has turned “decisively positive” owing to the bumper Rabi crop and an outlook for a normal monsoon in 2025. The softening of global crude prices adds to the overall comfort. On the other hand, concerns about lingering global market uncertainties and the recurrence of adverse weather-related supply disruptions pose upside risks to the inflation trajectory.

The RBI Governor clarified that the change in stance to ‘accommodative’ signals the intended direction of policy rates in the future and is not directly linked to liquidity conditions. This implies a possible flexibility that RBI is likely to display in managing liquidity as per evolving domestic and global developments.

This shows that RBI is keeping flexibility with itself in terms of refining liquidity as per the requirement of the economy and volatility in currency markets. In its post-policy conference, the Governor did allude to the possibility of keeping liquidity in surplus to the tune of 1% of NDTL, which implies a surplus of INR 2.4 tn at current levels of NDTL.

Under the regulatory segment, the RBI has laid out plans to address stress in the banking sector through a market-based Securitisation of Stressed Assets Framework, offering an alternative to the ARC mechanism. Simultaneously, the regulator is pushing for a more inclusive co-lending architecture by proposing a broad-based framework that allows for various combinations of regulated entities, moving beyond the current bank-NBFC limitations.

The RBI has also turned its attention to harmonizing divergent practices across financial institutions by reviewing regulations on loans against gold jewellery and non-fund-based credit facilities. Gold-backed lending, which serves both consumption and income-generating purposes, has been regulated inconsistently across RE categories. To address this, the RBI proposes a unified and risk-sensitive regulatory structure. For non-fund-based instruments such as guarantees and letters of credit—key tools in trade and infrastructure finance—the RBI aims to consolidate and revise existing norms. Notably, this includes changes in partial credit enhancement guidelines to encourage wider participation in infrastructure funding.

On the digital front, It has proposed delegating the authority to revise UPI transaction limits to NPCI, within a risk-managed framework. Meanwhile, in the fintech space, the Regulatory Sandbox has evolved into an ‘On Tap’ and ‘Theme Neutral’ model, designed to accelerate experimentation without thematic constraints.

Outlook

The change of stance accords dovishness to Apr-25 policy vis-à-vis Feb-25. Greater confidence in inflation attaining its 4.0% target in FY26, against the backdrop of deteriorating global growth prospects, appears to have wielded on RBI’s decision.

Against the acknowledged downside risks to both growth and inflation, we expect the MPC to stick to the path of monetary easing and anticipate another 25 bps of rate cut in the next policy review in Jun-25.

G-sec view

From a g-sec market perspective, given the shift in monetary policy stance and the outlook of further rate cuts, we revise our 10Y g-sec yield call to 6.20% for the end of FY26 (from 6.40% earlier).

Below is Acuité Ratings & Research Limited's comment:

“The RBI’s MPC has taken a much-expected supportive turn by cutting the policy repo rate by 25 basis points to 6.00%, marking its second consecutive rate reduction and a shift in stance to “accommodative.” With CPI inflation easing to 3.6% in February and FY26 projections at 4% on the back of a favourable monsoon, the move is timely.

While domestic fundamentals such as buoyant rural demand, improving urban consumption, rising capacity utilization, and healthier corporate balance sheets remain supportive, the global economic landscape is fraught with downside risks. RBI has lowered its FY26 growth forecast from 6.7% to 6.5% due to growing concerns over global headwinds. Heightened trade tensions, an escalating tariff war, and persistent geopolitical uncertainties are weighing on export prospects and weakening investor confidence internationally. Against this backdrop, the MPC’s decision to front-load support to domestic growth, especially for our domestic growth drivers, which might be affected by tariffs such as the MSMEs, is a welcome move. By leaning into the window of disinflation, the RBI is aiming to cushion the economy from external shocks and sustain the momentum in consumption and investment recovery.”