The price reduction cycle is likely to continue; The event is still unconfirmed

With the Indian economy recovery from the great fluctuations in the fiscal year 25, only for the start of the 26th fiscal year with more escalation in the global inertia, monetary policy deliberations in RBI will be monitored next week for policy signals to move in the difficult economic scene.

The MPC deliberation record in February, when the MPC axis, has decided to reduce prices, has a clear shift in MPC’s concentration towards support for economic growth. Since then, inflationary fears have decreased extra, and the expected inflation path remains for the seven to the next eight benign as well.

With MPC concentration from inflation concerns to growth support, low inflation in the title opens a policy space for deeper price discounts. Moreover, with the transfer of the main inflation level to less than 4 % now, the real interest rate in the economy is currently working at more than 2.25 %, which is more than 1.4-1.9 % for India. From this perspective, the real interest rate in the economy affects growth pulses. The last MPC report shows that one of the members has argued that the rate of political re -purchase may be excessively close, which increases the risk of destroying the growth impulses. Consequently, policy prices must be transferred to 50-75 basis points for more real interest rates in the neutral range.

From a domestic perspective, therefore, there is a need for a need and a policy to reduce interest rates by 25 basis points next week and follow them with some additional price cuts later in the year. The global background yet is still unconfirmed. The tariff announcements on the day of liberation by the American President escalated from the universal uncertainty.

The 10 % baseline tariff for all countries and mutual definitions in 180 countries is much higher than the previous market expectations. The use of bilateral deficit, currency manipulation and non -transmitted barriers to estimate the definitions we face make it difficult to measure the degree of disturbances. It can lead to responses from different countries and re -connect global trade flows.

The potential impact on Indian economic parameters, such as exports and growth, will remain uncertain at a time when all this tariff and the commercial uncertainty of a settlement. Since RBI is calibrating the monetary policy responses to the changing geopolitical dynamics, it will be wise to continue its neutral position.

The real question facing MPC is not if they should reduce the interest rate in April, instead of the depth of the current price reduction cycle, to protect growth pulses from local and global challenges. The peripheral interest rate for the price reduction cycle that RBI started on February 25 is the great unknown, and the MPC evaluation of the current economic conditions must provide some clarity on reducing the cumulative rate during the course.

Another challenge facing MPC when they meet next week is to increase the effectiveness of policy discounts. Any decision on low prices must reduce borrowing costs, stimulate investment, and provide relief to consumers who wrestle with high interest rates on loans. However, liquidity should be positive in a meaningful way to the transmission of a rate reduction.

Liquidity in the banking system has been in a state of deficit since mid -December 2024, despite various measures to derive the long -term liquidity in the system. Although we expect liquidity measures from RBI will continue in the first part of the 26th fiscal year as well, we also expect RBI to double the increase in infection and reduce borrowing costs.

In general, the MPC is likely to continue in the price cutting course, with a reduction of 25 other basis points in the ribau rate at the MPC meeting in April, while maintaining a neutral position in the opposite winds. RBI is also likely to continue with a circular policy tone, and emphasize liquidity. Any indication of pumping permanent liquidity and the peripheral policy rate will be an additional reward.

The author is the chief economist, L & T Finance Ltd.

The opinions that the expert expressed to him/her.

About L & Tinance Ltd. (LTF)

L & T Finance Ltd. (LTF) (www.ltfinance.com), previously known as L & Tinance Holdings Ltd. , It is a leading non -banking financial company (NBFC), and provides a range of financial products and services. Its headquarters is located in Mumbai, and the company “AAA” – the highest credit rating of NBFCS – was ranked by four leading rating agencies.