RBI Governor Sanjay Malhotra said that central banks around the world are finding it harder to manage their economies due to rising global uncertainties. Speaking after the Monetary Policy Committee (MPC) meeting, he said the global situation is “fragile and changing quickly,” but added that India still offers great opportunities for investors.
In an unexpected move, the Reserve Bank of India (RBI) reduced the repo rate by 50 basis points, bringing it down from 6.00% to 5.50%. This was more than what most experts had predicted. A report by Nuvama had expected only a 25 basis point cut.
Nuvama’s report explained that demand is weakening, as seen in slower credit growth, fewer car sales, reduced real estate activity, and lower household earnings. Inflation is also staying low, under 4%, based on a three-month average.
The report also said the repo rate might fall further, possibly to 5.00–5.25% during this rate-cutting phase. It mentioned that the current financial conditions are improving, with a softer U.S. dollar and better liquidity. However, it warned that the demand recovery might stay slow due to strict government spending and uncertain exports.
On Friday morning, the rupee weakened slightly before the policy announcement. The 1-month forward rate suggested it would open between 85.86 and 85.90, compared to 85.79 the day before.
The RBI’s bigger-than-expected rate cut is likely to catch global attention, especially as markets await important U.S. job data later today to see how the U.S. central bank may respond.