Informist, Wednesday, Aug. 6, 2025

MUMBAI - Paras Jasrai, associate director, India Ratings and Research, said the following on the Reserve Bank of India's third bi-monthly monetary policy for 2025-26 (Apr-Mar) detailed on Wednesday:

The outcome of the Reserve Bank of India's August monetary policy review was on expected lines. The monetary policy committee maintained a status quo on policy rates. The transmission of the 100-basis-point rate cuts done during February-June into the economy is yet to be complete, which appears to be the underlying approach in the August policy review.

On the projections front, while the MPC has retained its GDP forecast at 6.5%, inflation is projected to go down to 3.1% from 3.7?rlier in FY26. Inflationary trends have been surprising on the positive front each month which has resulted in the downward revision of the retail inflation. However, the central bank expects the retail inflation to increase to beyond 4% from the fourth quarter of FY26 onwards, nearing the 5% mark in the first quarter of FY27 indicative of the narrow window of further monetary easing. The retention of the GDP growth forecast for FY26 is surprising and suggestive of the central bank's confidence in the progression of domestic economic activity at a time when the uncertainty and volatility in global economic environment remains elevated.

Low interest rates are necessary but not sufficient in themselves for lifting investment and consumption demand. Larger lifting factors are employment conditions, wage growth, stable policy environment and correction of structural limits (such as factor market reforms, tax structure, infrastructure, etc.). Thus, monetary policy has limited maneuvering power to propel demand side factors in the short-run.

The benign inflationary trend is quite favourable, especially for a sustainable improvement in consumption demand. However, the future course of monetary policy would be dependent on how the inflationary trajectory pans out in the next few months. We believe there is some scope for further monetary easing (maximum 50 bps). However, this may unfold if the impact of the tariff war on Indian economy becomes too adverse. End

Compiled by Ketaki Patil
Filed by Deepshikha Bhardwaj

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