The minutes of the Monetary Policy Committee (MPC) meeting, held on April 7-9, reflect a dovish tone, with growth taking center stage in the Reserve Bank of India’s (RBI) policy approach. The MPC appears more confident that inflation will move towards the 4% target, allowing it to shift focus towards supporting economic growth. The RBI’s decision to change its monetary policy stance to “accommodative” and cut interest rates by 25 basis points (bps) has been seen as a “double booster shot” for the economy. This combination implies that interest rates will likely remain low or may even decrease further, making borrowing cheaper and supporting economic activity.
All MPC members, except one, agreed on the rate cut and shift in stance. The accommodative stance signals that a rate hike is unlikely for now, and the RBI can still pause if economic conditions demand it. The downward revision in the RBI’s inflation forecast for FY26 by 20 bps has created additional room for monetary easing in the future. The RBI has projected India’s GDP growth at 6.5% for FY26, but Union Bank of India feels this is optimistic and pegs growth closer to 6.0%, citing weak capital expenditure sentiment and rising global uncertainties.
Looking ahead, the report expects the RBI to cut the repo rate by another 50 bps, bringing it down to a terminal rate of 5.5%. This projection is based on an assumption of a neutral real interest rate of 1.5%. The tone of the minutes and the Union Bank report suggests that the central bank is prioritizing growth as inflation risks appear to be easing. The RBI’s focus on growth is likely to continue, with the possibility of further rate cuts in the future. The accommodative stance and low interest rates are expected to support economic activity, making borrowing cheaper and boosting growth.
The shift in the RBI’s policy approach is significant, as it indicates a change in the central bank’s priorities. With inflation risks easing, the RBI is now focusing on supporting economic growth, which is likely to have a positive impact on the economy. The report’s expectations of further rate cuts and the RBI’s accommodative stance suggest that the central bank is committed to supporting growth and stimulating economic activity. Overall, the minutes of the MPC meeting and the Union Bank report suggest that the RBI is taking a dovish approach, prioritizing growth and seeking to support the economy through monetary policy.