RBI’s Dual Achievement

RBI Announces Surprise Rate Cut and Liquidity Injection

The Reserve Bank of India (RBI) has taken the market by surprise with a 50 basis point reduction in the repo rate and a 100 basis point cut in the cash reserve ratio (CRR). These moves, totaling 100 basis points since February, aim to promote faster transmission and support growth amidst global uncertainties. The RBI also changed its stance from “accommodative” to “neutral”, signaling a potential pause after the recent rate cuts.

RBI Governor Sanjay Malhotra emphasized the need for certainty in the uncertain economic environment. The decision to front-load the rate cuts was driven by a favorable inflation outlook for FY26, with inflation expected to be at 3.7%. This move, the steepest reduction since the emergency easing in March 2020, aims to boost confidence in the markets, banks, and the economy.

The central bank has retained its growth forecast at 6.5% for the financial year. The 100 basis points cut in CRR is expected to inject Rs 2.5 lakh crore liquidity into the financial system, with the funds distributed in four stages between September and December. This move is anticipated to support banks during the festive season when loan demand typically surges.

The markets reacted positively to the announcement, with the Bank Nifty reaching an all-time high and the Nifty crossing 25,000 points. The Indian rupee appreciated against the dollar, and the government welcomed the rate cut as a boost for sustaining growth momentum and encouraging private investments.

Experts have praised the RBI’s decisive actions, with the aim of faster transmission of policy rates, reduced cost of credit, and greater medium-term visibility. While the RBI has taken proactive steps to prevent further economic slowdown, there is a call for India Inc, banks, and the government to play their part in stimulating economic growth.