The monetary policy met expectations with a 25 basis points (bps) rate cut. With downside risks to growth greater compared with the February policy and inflationary pressure weaker due to falling crude prices, a rate cut was a forgone conclusion.
The shift in stance supports the durability of the rate reduction cycle, and we anticipate at least two more rate cuts of 25 bps each within the fiscal year.
The forecast of normal monsoon could bring happy tidings for agriculture and food inflation, though heat wave and other weather-related disruptions will bear watching amid rising disruptions from climate change.
The global environment, meanwhile, has become more uncertain due to significant tariff increases by the US and retaliatory measures from some economies. Consequently, the downside risks to growth in major economies are now considered a base case scenario.
RBI, too, has cut its growth forecast to 6.5% due to rising uncertainty and downside risks from tariff-related developments.
Given the numerous moving parts, forecasts are now less reliable. Nonetheless, in our base case, we project India to grow at 6.5% with risks tilted to the downside and inflation rate of 4.3% in fiscal 2026. The downside risks to growth come from rising uncertainty, which impairs decision making, and the impact of tariffs and slowing global growth on exports.
