Key Policy Decisions

• The policy repo rate was lowered by 50 basis points from 6.00% to 5.50%.
• Consequently, the Standing Deposit Facility (SDF) and the Marginal Standing Facility (MSF) rates were lowered to 5.25% and 5.75% respectively
• Five out 6 MPC members voted for a 50bps cut while one member voted for a 25bps cut
• The MPC also changed the policy stance from “Accommodative” to “Neutral”.
• The Cash Reserve Ratio (CRR) for banks was reduced by 100 basis points from 4% to 3%.

Forward Guidance/Stance

The stance shift in one policy was unusual but necessary as the 50bps rate cut could have led to high expectations of aggressive easing in the upcoming policies. After reducing the policy repo rate by 100 basis points since February 2025, the RBI guided that room for further rate cuts is limited , and that the monetary policy will be more data-dependent going forward.

The policy stance is changed to ‘neutral’ from ‘accommodative’. However, the RBI Governor’s commentary seemed more biased towards pushing the growth trajectory higher by implementing complementary monetary and credit policies and regulations to support growth and prosperity.

RBI Governor Sanjay Malhotra noted: “While price stability is a necessary condition, it is not sufficient to ensure growth. A supportive policy environment is vital” . This indicates a shift in RBI’s thinking around growth-inflation trade-off.

Considering the above guidance, we expect interest rates to be in a “lower for longer” setup, provided there is no inflation shock.

Growth Inflation Dynamics

The MPC noted the recent softening in the inflation trajectory and showed greater confidence in its durable alignment with the RBI’s 4% target. It reduced the average CPI projection for FY 2025-26 from an earlier 4% to 3.7%.

Meanwhile, the MPC sounded more cautious about growth, noting downside risks from protracted geopolitical tensions, global trade and weather-related uncertainties.

Although the full-year GDP growth projection for FY 2025-26 is maintained at 6.5%, the RBI Governor pointed to current growth being lower than India’s ‘aspirational’ growth rate and advocated for front-loading of policy accommodation.

Malhotra noted: “Changed growth-inflation dynamics calls for not only continuing with the policy easing but also frontloading the rate cuts to support growth.”

RBI projections for CPI Inflation and GDP Growth compared to previous forecast:

	CPI Inflation (%)			GDP Growth (%)
	7-Feb-25	9-Apr-25	6-June-25	7-Feb-25	9-Apr-25	6-June-25
Q1FY26	4.5	3.6	2.9	6.7	6.5	6.5
Q2FY26	4	3.9	3.4	7	6.7	6.7
Q3FY26	3.8	3.8	3.9	6.5	6.6	6.6
Q4FY26	4.2	4.4	4.4	6.5	6.3	6.3
FY2026	4.2	4	3.7	6.7	6.5	6.5

Source: RBI

Liquidity

The Reserve Bank of India reiterated its commitment to provide sufficient liquidity to the banking system to ensure the transmission of easier monetary policy into the real economy. It reduced the Cash Reserve Ratio (CRR) for banks by 100 basis, staggered in four tranches of 25bps each on September 6, October 4, November 1 and November 29, 2025. This move will infuse over Rs. 2.5 trillion of additional durable liquidity in the banking system on top of Rs. 9.5 trillion infused by RBI through OMOs and FX swaps since January 2025 and Rs. 2.7 trillion of RBI dividends to the government. With the current core liquidity surplus

Market Outlook

Position for a “lower for longer regime”

The RBI’s decisive policy actions reflect a proactive approach to support economic growth amidst a favourable inflation backdrop. By delivering a larger-than-expected cut and a substantial and forward-looking liquidity infusion, the central bank has signalled its commitment to ensuring adequate liquidity and facilitating the effective transmission of monetary policy.

In the absence of any material downside shock to growth, we would expect the RBI to maintain the policy repo rate at 5.5% for a longer period and wait for past rate cuts and liquidity infusion to transmit into the real economy.

Term spreads between Moderate duration bonds (up to 5 years) and overnight rates are expected to narrow as sustained surplus liquidity suppresses term premiums.

Investors with more than 12 months investment horizon can consider moderate duration products like shortterm/corporate bond funds that are well positioned to capitalise on a benign macro backdrop and a liquidityrich environment. Investors looking at a 6–12-month investment horizon can consider money market or lowduration strategies.

The views expressed are author’s own views and not necessarily those of UTI Asset Management Company Limited. The views are not an investment advice and investors should obtain their own independent advice before taking a decision to invest in any asset class or instruments

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