Key Takeaways

1. The SMPC members were equally distributed in recommending a rate cut of 50 bps and 25 bps.
2. Amongst the guest members one recommended 50bps cut, 4 recommended 25 bps cut and 1 recommended pause.
3. Transmission remains weak despite recent liquidity improvements; durable surplus liquidity is essential.
4. Real interest rates are high, discouraging investment; a cut would realign them with growth needs.
5. Private investment is lagging, and lower rates are seen as a trigger to revive corporate capex.
6. Global recession risks and tariff uncertainties call for proactive, not reactive, monetary policy.
7. Liquidity infusion, not just rate action, is key for effective credit flow, especially in MSME and infrastructure sectors.
8. Banks’ profitability and deposit rates are limiting transmission; RBI must balance rate cuts with financial stability.
9. Credit stress is rising in microfinance and personal loans, needing nuanced policy, not blunt instruments.
10. India is relatively insulated from global tariff hikes, but second-round global impacts could still hurt exports.

Recommendations of EGROW Shadow MPC

Members of EGROW — 6
Repo Rate
Pause – 0
Decrease – 6

• 50bps – 3
• 25bps – 3

Guests — 6
Repo Rate
Pause – 1
Decrease – 5

Stance — Recommended to Accommodative

Detailed Views by Members of the EGROW Shadow MPC

1. Dr. Ashima Goyal, Former Member, Monetary Policy Committee, Reserve Bank of India

India recently faced a phase of liquidity tightening, but the RBI has managed this challenge effectively. There was an initial overreaction to the uncertainty around the U.S. elections and global tariff changes, but with clarity now emerging, it's evident that tariffs will have a less severe impact on India compared to other economies. However, the global economy is slowing down, and India must respond proactively to mitigate domestic growth risks.

Inflation has stabilized around 4%, and we have allowed real interest rates to remain elevated for too long—currently above 1%. In a growth slowdown, this is inappropriate. To ensure alignment with growth objectives, India’s real interest rate should not exceed 1%. Delaying policy easing any further could worsen our cyclical slowdown, as the transmission of small rate cuts is weak, although it has started in market rates. A sizable rate cut can make a meaningful difference to borrowing costs for consumers and businesses.

The RBI has been overly cautious, and its slow pace in reducing rates has contributed to a weakening of growth. Now that the tariff picture is clearer, inflation is under control, oil prices are falling, and we are seeing signs of recovery in the exchange rate, stock market, and a reversal of negative trends, it's time to take bold, countercyclical action to boost domestic demand and offset slowing global demand.

Its recent actions have demonstrated that the RBI possesses adequate tools to manage durable liquidity. Moreover, it is important for banks to adapt and attract deposits even in a falling rate environment. Profitability concerns of banks should not delay necessary policy action. Historically, banks have found ways to remain profitable both in rising rate scenarios (via interest spreads) and falling rate scenarios (via treasury gains and cheaper funding).

The rupee is not overly sensitive to rate differentials, and fears of external factors are being overestimated. Domestic economic priorities must take center stage.

A 50 bps rate cut now is essential. It will help reduce the real interest rate to a more appropriate level, send a strong signal of policy support for growth, and allow for more effective transmission to consumers and businesses. This is the time for decisive, forward-looking monetary policy. A shift to an accommodative stance will increase market confidence that durable liquidity will remain adequate.

2. Shri Abheek Barua, Former Chief Economist, HDFC Bank & Independent Economist

I believe rate cuts should be front-loaded to stay ahead of the curve, especially as growth concerns mount. While both the Centre and RBI need to be proactive in supporting growth, the lingering uncertainty around inflation may compel a more cautious, reactive stance. Nonetheless, the bigger risk lies in a potential global recession. We may be underestimating its impact on India by focusing only on direct export losses — there will likely be second-round effects on financial markets and broader economic activity that we must be prepared for. Rate cuts are the best way to brace for that.

Liquidity constraints have persisted for both banks and NBFCs. The RBI must ensure there is adequate durable liquidity in the system. It may also be time to revisit the monetary policy framework itself — particularly which monetary aggregate should be targeted. Though considered old-fashioned, many of our liquidity mismatches stem from a disconnect between money demand and supply, which warrants a renewed discussion.

On the financial stability side, there is stress building in customer loans. It would be unwise for the RBI to respond with blunt instruments like tightening risk weights or implementing overly harsh prudential norms. A more nuanced approach, targeting specific segments showing signs of distress, would be more effective.

I strongly recommend a front loaded rate cut in the current policy, supported by a continued push for durable liquidity and a more measured, segment-specific approach to financial stability. This will help preempt deeper growth shocks while maintaining monetary credibility.

I recommend 50 bps rate cut with a change in stance to accommodative. Signal commitment to providing adequate durable liquidity compatible with growth and inflation targets / forecast.

2. Shri Indranil Sen Gupta, Professor of Practice of Economics, Shiv Nadar University

We look at a second 25bp RBI repo rate cut.

Our world view is of a possible US/global recession at a time India is seeing a slowdown on high real rates.

We never believed inflation is a problem in the Indian context.

We, however, desist from greater rate cuts to defend the INR from a possible rebound in the US Dollar that risk aversion from an US slowdown could bring.

It is absolutely critical to recognize that the RBI's ability to defend INR is now limited after the recent large-scale FX intervention sales.

An important source of high lending rates is the well-below optimal M3 growth rate of 9% levels.

We expect the RBI to continue to conduct OMO to offset the close-to US$100bn FX sales (including forwards).

3. Ms. Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank

We expect and recommend 25bp of repo rate cut in the April policy with change in stance to accommodative.

The growth environment is becoming increasingly fragile given the spill overs from the global tariff tensions. This will need the monetary policy to be extremely agile. However, for now given the uncertainty from global front, we should avoid aggressive policy response tight away to balance the external sector risks. Though, overall, we see room for 75-100bp cut by the RBI as growth risks dominate inflation concerns.

Besides, we expect and recommend to RBI continue on his path of keeping liquidity conditions amply surplus to avoid hindrance to monetary transmission. \

4. Shri Siddhartha Sanyal, Chief Economist & Head- Research, Bandhan Bank

I expect the RBI to announce a 25 bps rate cut in the upcoming policy, with the likelihood of at least one more cut later this year. The central bank has clearly moved toward a growth-supporting stance, but more important than the rate cut itself is how liquidity is managed. The RBI has surprised with the quantum and proactive nature of its recent liquidity operations, which has been encouraging.

With over 60% of the banking system’s loans now linked to the EBLR, any repo rate change will transmit quickly to lending rates. The real challenge will be whether banks can adjust deposit rates at the same pace, especially given the pressure on profitability across both private and public sector banks. Considering this, I believe the RBI will need to continue ensuring durable and adequate liquidity in the system.

Reserve money growth has been well below the historical average for some time, and now a more nuanced and calibrated liquidity approach is both necessary and timely. A stance changes to accommodative, though seen as symbolic, can also be justified in the current context and would align with the broader policy direction.

Given these considerations, I recommend a 25 bps rate cut in this policy along with a shift in stance to 'accommodative'. This would support growth, improve transmission, and signal continued policy support without undermining stability.

6. Dr. Charan Singh, CEO and Director, EGROW Foundation

The Indian economy is doing very well, according to the information released in recent weeks by the Government and the RBI. The growth rate is on the projected trajectory, and India continues to be the fastest growing economy in the world. The GDP is estimated to grow steadily in the next fiscal year, despite global uncertainties. The high frequency indicators also signal continued strength of the economy.

Inflation is easing, food prices as well as headline are range bound. In view of the production of agriculture as well as given the performance of core industries and IIP, it is safe to assume that the growth rate of the economy is looking upwards. The fiscal policy of the government has been responsible as the fiscal deficit is following the glide path. The country is facing lots of uncertainty due to domestic and external factors. The exchange rate has depreciated over the last few weeks, while the tariff war has escalated, adding fuel to uncertainty causing domestic financial markets to record a very big downfall. The liquidity conditions have improved substantially since the last two months, and the banking sector is performing well with the non-performing assets amongst the lowest in the last few years.

The key concern is that despite government incurring high capital expenditure which has multiplier effect, and is growth oriented as well as generates employment over the years, private sector investment is not rising. The key reason is that high interest rate scenario is temporary. Now it is expected that the interest rates will be further lowered and once it reaches an optimal level, which may not be too far away, private sector investment should pick up.

Then, an important point is at to what is that optimal level of interest rate that is the most conducive to attract private corporate sector investment. In view of the easing inflation environment and mounting uncertainties because of the tariff war, it would be appropriate for the Government and the Reserve Bank to be alert all the time. The Government has adjusted to the tariffs already, starting from the union budget, the monetary authority will have to be watchful of the announcements made by the US administration and the US Fed.

Further, India’s performance in terms of Foreign Exchange Reserves (FER) has been robust, as announced recently by the Honourable Finance Minister in the Parliament. The FERs are adequate to cover nearly 11 months of imports, which is a good level of reserves. However, the uncertainty due to tariff wars can impact India directly and more importantly, indirectly during the second and third rounds of contagion, if the Euro, UK and the US suffer from a slowdown or enter into a recession. India’s exports will immediately suffer significantly due to spill overs of tariff war though it may take a few months before India suffers a full-blown hit. Therefore, the policy making in the country will have to be on red alert in in view of the short term, medium and long term implications of tariff war.

Hence, I would strongly advocate a heavy, front loaded rate cut of 50 basis point and a change in the stance to accommodative. This heavy rate cut in the Repo rate would help in correcting the adverse situation which evolved over the years, implying that the delay in the Repo rate cut which should have happened earlier, should now happen at the earliest. This step will help regain investor confidence and also help to enhance investment by the private corporate sector.

Guest Panellists – Specialists from Market and Members from ASSOCHAM:

1. Shri Subhas C. Aggarwal, Chairman and Managing Director, SMC Group.

Rate cut by 25 bps in this MPC is expected.

Reciprocal tariff imposed by USA on India at 26 percent and many other countries at various rates will create trade war and of recessionary nature will create challenges to USA economy and global economy. So, IT sector will be facing slowdown. It is expected that these tariffs rates will not remain for a longer time and rationalisation in tariff rates will be happen in due course. Liquidity in the economy will have to be ensured by the RBI governor in the MPC. In the financial year 25-26 two rates cut is possible of 25 bps each.

Accommodative stance instead of neutral stance is possible in this MPC.

2. Rajan Pental, Co-Chairman, ASSOCHAM National Council for Banking and ED, YES Bank Ltd.

CPI softened more than expected to 3.6% YoY in February 2025 against 4.3% in January 2025, touching a seven-month low. This February drop in vegetable prices was much sharper than in previous February months. Core inflation at 4.0% YoY witnessed a sequential momentum of 0.56%.

Given the sharp drop in vegetable prices and thus Headline CPI, our model now predicts Headline CPI to average at 4.7% in FY25 while FY26 average could print below 4.0% (currently estimating 3.5-3.7%). However, IMD has predicted India to have an early intense summer, that could influence vegetable and food prices into FY26 and would remain a critical factor to monitor.

India’s real GDP grew by 6.2% YoY in Q3FY25 while Q2FY25 GDP was revised up to 5.6% YoY. Private consumption expenditure grew by 6.9% YoY in Q3FY25 vs 5.9% YoY in Q2FY25 and registered a QoQ growth of 12.2%. The recovery in the private consumption growth was due to festival spending, majorly led by rural economy on the back of good kharif harvest.

We estimate GDP growth at 6.2% in FY25 (lower than the Second Advance Estimates at 6.5%) with Q4FY25 at 6.5% YoY. Correspondingly real GVA is estimated at 6.4% YoY for FY25 (Q3FY25: 6.2% YoY).

For FY26 we expect GDP at 6.5% compared to RBI estimates at 6.7%.

On Liquidity:

LAF liquidity deficit averaged to INR 1677 bn in Q4FY25 as against a surplus of INR 726 bn in Q3FY25. Accounting for government balances, the Net Durable liquidity moderated from surplus of INR 644 bn at the start of the quarter and turned deficit to INR 341 bn by the quarter-end. The RBI used multiple tools, including CRR cuts, OMO purchases of government securities, longer term VRR and buy/sell USD-INR swaps to inject liquidity into the system. RBI is continuing with its liquidity infusion strategy in April 2025 and has announced an infusion of INR 800 bn via OMO purchases of government securities, in four tranches of INR 200 bn each.

With government expenditures starting off in April for the new FY and with lower risks for INR depreciation (lower inflation is a positive for INR while Trump tariffs is a negative for INR – however we think that the impact of Trump tariffs on India may not be very significant). Thus, FX sales related rupee liquidity risks may not be significant. Thus, we expect banking sector liquidity to remain positive in Q1FY26.

Implication for monetary policy action:

In the February meeting, MPC members unanimously voted in favour of a rate cut by 25-bps while maintaining the stance at “neutral”. The minutes express MPC members’ concerns on risks emanating from the slowing pace of disinflation, geopolitical tensions, and policy uncertainties, that explains an unchanged stance.

Headline CPI has been on a downward trend since December 2024 as there has been significant comfort in the vegetable prices. This has led to significant downward revision of FY25 average CPI at around 4.4-4.6%. Going forward, assuming normal monsoon and non-erratic climate conditions we think that inflation could average around 3.5-3.7% in FY26. While there is a relief on food prices, core inflation has been consistently inching upwards. Bloomberg commodity index indicated an uptick of 6.3% MoM in February, picking up for third consecutive month. Trump tariffs have also raised fears of a US recession that may negatively impact commodity prices going forward. Indeed, Brent crude oil prices dipped to USD 70/bbl after the tariff announcements by the US.

Given this scenario, we expect the RBI to continue to ease monetary policy via a 25 bps cut in both April and June. While the sharp drop in inflation has opened room for more rate cuts, we think that there could be a pause by the RBI post the June rate cut, to assess the inflation scenario on account of summer vegetable price inflation increases. Further, implications of the Trump tariffs on growth and inflation will also be better understood by then.

For now, we are thinking of a terminal repo rate of 5.75%. However, the chances of a deeper cut have increased consequent to the recent larger-than-expected downshift in inflation. We have indicated earlier that liquidity is likely to stay adequate. However, we still do not think that the stance will be changed to “accommodative” as tail risks to inflation remain with the current large doses of uncertainty.

3. Shri. Sadaf Sayeed, CEO, Muthoot Microfin Ltd.

We anticipate a rate cut in the upcoming RBI monetary policy; A rate cut of 50 Bps with accommodative stance on policy.

RBI has taken some welcome steps of liquidity infusion into the economy using OMO on multiple occasions, especially since the new Governor took charge. we anticipate such initiatives to continue. With US imposing tariffs across the globe, it will end up importing inflation into US. It will also lead to recessionary pressure as consumption slows down. Dollar may weaken which would be good for Indian fiscal deficit situation. Given the macro-economic situation, where CPI inflations has eased down to 3.61%, food prices also cooling down with good Kharif crop. Inflation being well within RBI targeted range, it is time for RBI to give growth impetus to Indian economy by reducing policy rates further.

Considering the volatile global environment, which will prevail thought the year, with US President Donald Trump waging a tariff war all across the world, which may lead to some retaliatory tariff hikes from other economies like Canada etc, we anticipate global trade to slow down. This will bring recessionary pressure and along with it tariffs will create inflation in US, as consequence there could be slow down across the world. It is time for us to boost domestic consumption and promote domestic business, it is necessary that liquidity supply remains robust, and rates are tempered down to promote more production and sales.

Rural economy is recovering well with good Kharif crop, reservoirs are sufficiently full, RBI sowing was good, and a good RBI crop is also anticipated. Provided Monsoons are good, we anticipate the rural economy to revive and do well in the coming FY. it is important that credit supply in rural economy remains robust.

4. Kishore Lodha, CFO, UGRO Capital Ltd

Barring the last fortnight, systemic liquidity has remained extremely tight for almost 3–4 months now. Hence, the RBI should focus on creating durable liquidity in the system.

There is a wide gap between CPI and benchmark rates, which warrants a rate cut. However, the financial system has been unable to fully transmit the previous rate cut to all segments of borrowers, as deposit rates remain high, credit-deposit (CD) ratios are increasing, and CASA ratios are declining. Therefore, the RBI can afford to wait before embarking on another round of rate cuts rather than front loading the rate cuts. Having said that this year we may see at least 2 rate cuts if not more. RBI should instead focus on addressing liquidity concerns.

Credit growth has declined to around 13%, which could impact the future growth of the economy.

In the financial services sector, operating expenses (OPEX) are rising, and credit costs are expected to increase. As a result, margins of banks and NBFCs are likely to remain under pressure.

5. Sh. Arjun G Nagarajan, Chief Economist, Sundaram Mutual

We don't feel the tariffs are here to stay in their current elevated form.

While the silver lining for India is that its tariffs within Asia are at the lower end; the simple act of Trump giving control of the iepp act to himself could be a sign that there is much more room for negotiated downward revision in the tariffs into the months ahead.

Narrative in the equity markets I feel is more fearful that the situation must warrant.

Don't expect a US recession, but a slowdown for sure and that inflation would move up much slower than expected.

EMs would take a leaf from what China did in 2018 where most of the tariff impact was taken on company margins alongside currency weakness.

Expect EMs to use their currencies and fiscal space to offset the impact, in a similar way.

Given that the Rupee could see more pressure in the quarters ahead, while a pause might be warranted, the RBI can err on the side of caution with a 25bps rate cut.

More than front loaded rate cuts, given how the rupee was the source of most of the liquidity pain we have seen in the past, liquidity focus I think would be more needed for the current uncertainty.

6. Shri Sujit Kumar, Chief Economist, NABFID

There has been welcome turn of events for MPC to feel rather comfortable deciding monetary policy course ahead.

Growth outrun since last bimonthly review has been somewhat better with Industry output improving, consumption showing resilience as evidenced by high frequency data on consumer durable sales, GST collections etc and investment demand getting boost from better Government capex in Q4.

Encouragingly, inflation prints have come softer than MPC projections in February 2025 and seen staying sub four percent in March 2025 as well. With core inflation largely stable around 4 percent, headline inflation is see behaving well in 2025-26 on expectations of better rabi harvest ahead.

On external sector, INR has noted gains against USD, of late, as FPIs turned net buyers in Indian markets in late March 2025. The Balance of Payment situation remains benign especially with Services and remittances putting a strong show on current account.

With Trump administration unveiling absurdly high tariffs on April 2nd, the risks to global trade, and therewith economic growth have grown materially. The ensuing uncertainties will further depress and defer investments ahead.

There is need to watch for counter-tariff response from countries, especially China and EU, and how it plays out over coming months.

The RBI has brought system liquidity in mild surplus zone, creating enabling conditions for transmission of rate cuts to bank lending rates. Meanwhile, corporate borrowing costs have also come down reflecting easing liquidity and further rate cut expectations from the RBI.

Taken together, it is time MPC shifts stance to "accommodative" while effecting another 25 bps cut in policy repo rate in upcoming annual monetary policy on April 9th.