Last time we had called the April 2025 monetary policy a brave policy for multi-level macro adjustments. In June, it is again a policy that shows aggression by the RBI, with a streak of dovishness.
What did the RBI announce?
The RBI made some big-bang changes in the June monetary policy. The first big change was the 50-bps cut in repo rates, taking it to 5.50%, just 35 bps above the pre COVID rates. Secondly, RBI also cut CRR by 100 bps from 4.0% to 3.0%, releasing ₹2.50 trillion of funds in the process. That adds to lendable resources of Indian banks. Above all, it also cut the inflation estimate for FY26, further by 30 bps from 4.0% to 3.7%. But, Monetary Policy in india there were 3 subtle messages too.
Reversing the stance shift
In a rather surprising move, the RBI shifted back the stance of the monetary policy from “Accommodative” stance to “Neutral.” This reverses the shift of April policy. Why is this reversal of the stance significant? This indicates that the RBI does not see the necessity, nor does it have the ammunition to continue to keep the policy accommodative. That is because, the RBI has already cut the rates by 100 bps since February, and to top it, the CRR has also been cut by 100 basis points in June. In short, markets have to now rely on fiscal policies to push growth and there is not much more that RBI can do for GDP growth.
Price stability stake CenterStage
With RBI shifting its Accommodative rbi repo rate 2025 stance to Neutral, it is a clear signal that the RBI goes back to its core goal of price stability. It is also a sort of mild warning that financial markets must not be mugged into a sense of complacence by the persistent fall in food inflation. By shifting the RBI stance back to Neutral, the policy has very subtly highlighted the inflation risks at this point of time. For example, any sharp revival in global growth could put oil and commodity inflation in the focus all over again. Secondly, there is too much of optimism over monsoons and Kharif, and that could well be misplaced. Inflation risks brokerage charges online of global flux are real, and it depends on how the Indo US equations work out.
Liquidity has been back-ended
Another interesting aspect of the CRR cut is that; it is back-ended. The 100 bps CRR cut will take place in 4 tranches of 25 bps each between mid-September and the end of November. That is still some time away. This time lag gives the RBI sufficient time to evaluate whether there are liquidity risks to the system or not. Currently, the broad view is that the RBI does not have much further leeway on rate cuts. Hence, liquidity is monetary policy of RBI 2025 what the RBI will use to boost growth. However, the RBI would want to use the liquidity tap, only if essential, in the event of global risks impacting growth in India. RBI has played its BSE cards well!
