HT Bureau
GUWAHATI, Feb 7: In a move aimed at bolstering economic growth, the Reserve Bank of India (RBI) reduced the policy rate by 25 basis points, marking a shift in its inflation-growth trade-off. The decision, according to Sakshi Gupta, Principal Economist at HDFC Bank, reflects the central bank’s newfound “flexibility” in its inflation targeting framework, signaling a departure from its earlier focus on bringing inflation down to the 4% median target.
Despite the rate cut, the Monetary Policy Committee (MPC) maintained a neutral stance, suggesting a cautious approach to further reductions in this easing cycle. Gupta noted that while the RBI is committed to ensuring adequate liquidity in the system, it has refrained from an aggressive infusion, leaving some liquidity pressures unaddressed. These pressures are expected to persist as fiscal outflows, including advance tax payments, impact liquidity towards the end of the month and financial year.
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To manage these challenges, Gupta anticipates the RBI will implement liquidity infusion measures such as open market operations (OMOs), buy/sell swaps, and longer-duration repos. The central bank has also expressed confidence in the ongoing disinflation process, projecting an average inflation rate of 4.2% for FY26 while maintaining a strong growth outlook of 6.7%—at the upper end of the 6.3-6.8% range projected in the Economic Survey.
On the regulatory front, RBI Governor Shaktikanta Das emphasized a balanced approach, weighing the benefits and costs of new regulations. However, the policy statement did not provide further clarity on the implementation of the new Liquidity Coverage Ratio (LCR) norms.
Looking ahead, Gupta expects the RBI to frontload rate cuts, with another 25bps reduction likely in the April policy review. The extent of further easing, she noted, will depend on domestic economic conditions and global financial headwinds.
