More signs of dowishness were: RBI has cut its GDP growth forecast for the current year to 6.7% (released in February) to 6.5%. At this stage, RBI has the highest forecast market. But the Governor was strong in recognizing the challenges for development.
He said, “Development is still on a recovery path after a spectacular performance in the first half of 2024–25,” he said and proceeded to face the challenges caused by the US tariff war running by the US.
“First and foremost, uncertainty in itself reduces development by influencing investment and businesses and houses. The governor explained. The market considered that the RBI development forecast and cuts are a different possibility.
The RBI had another clear indication to cut its inflation for this year from 4.2% to 4% for this year. In fact, during 2025, according to the RBI forecast, inflation is likely to be below the target of 4%of MPC. The MPC statement was clearly davish: “There is a decisive improvement in the approach to inflation,” it reads.
“According to estimates, now with a target of 4%, there is more confidence of a durable alignment of headline inflation.” The market was particularly excited by the use of the word “durable alignment”. By December 2024, RBI’s statements repeatedly stated that MPC aims to align inflation trajectory with 4% target. MPC feels that “sustainable alignment of inflation for the target” has been achieved
At the press conference, the governor indicated that RBI would not be ignored at the actual rate below 150 BPS. The CNBCTV18 question was given that inflation is estimated to be less than 4% for all of 2025; Will the RBI be fine with a actual rate of less than 150 bps, and so it will take the repo rate up to 5.25%?
Responding, the governor said, “Think of the study we have, the real rate, in the limit of different studies, which are from 1.1% to 1.9%, so 1.5% is quite admirable real rate, or a natural real rate … as far as the political rate is related, we are solid to the stance.
While the governor did not say that he is fine with a real rate of less than 1.5 percent, many people in the market have explained the governor’s reply, which means that the RBI will not be affected by a low actual rate. City economist Sameeran Chakraborty told CNBCTV18 that in this cycle, the repo rate could be below 5.5%. Kotak Bank’s worship Bhadwaj has reduced the expectation of its terminal repo rate by 5-5.25% and HSBC’s Pranjul Bhandari also told CNBCTV18 that while expected that the repo rate will be cut by 5.5%, there is a risk for this previous previous.
The last vigorous piece of dovishness was repeatedly requested for the Governor that RBI would keep liquidity in a comfortable surplus. “I don’t want to give a number of what kind of surplus, but enough in the surplus,” he said.
Asked whether liquidity will be placed, says, 1% of pure demand and time liabilities (NDTL), he replied, “Okay, yes, this is a kind of number, you know, about 1% or so in the surplus range. Now that we are looking easily, we see it adequately.
Everyone said, it appears that RBI is ready to raise heavy for development, especially if the ongoing tariff war leads to a fearful recession in global development.
However, the RBI’s most difficult task cannot with the rate cut and liquidity, as a adjacent tariff guide the exchange rate that looks like a war that will spread mostly to the currency war. The People’s Bank of China has blown the Bagle on Wednesday since September 2023 by fixing the dollar-utterance rate at its lowest point on Wednesday. It can be worse than this.
Inflation alignment
