Context: To reinforce macroeconomic stability amid easing inflation and resilient growth, the Reserve Bank of India (RBI)—through the Monetary Policy Committee (MPC) and liquidity management tools—has announced a coordinated set of monetary and liquidity measures.
Key Measures by the Monetary Policy Committee (MPC)
1. Repo Rate Cut (25 basis points to 5.25%)
The RBI reduced the repo rate—the rate at which it lends short-term funds to banks against government securities.
Objective: Stimulate economic activity by lowering borrowing costs and ensuring adequate liquidity.
Impact: Bank lending rates and EMIs decline, corporate borrowing becomes cheaper, and money-market rates align more closely with the policy rate.
2. “Goldilocks” Forecast Revisions
The RBI revised FY26 GDP growth upward to 7.3% and lowered the CPI inflation projection to 2.0%.
A “Goldilocks” scenario denotes strong growth with low inflation—neither overheating nor recessionary.
Impact: Improved market sentiment, softer bond yields, higher equity valuations, and better anchoring of expectations.
About the Monetary Policy Committee (MPC)
- Nature: Six-member statutory body (established in 2016 via amendment to the RBI Act, 1934).
- Mandate: Maintain price stability while supporting growth.
- Inflation Target: CPI at 4% ± 2% under the inflation-targeting framework.
- Composition: RBI Governor (Chair), one Deputy Governor, one RBI official, and three Government-appointed external members (four-year terms).
- Process: Decisions by majority vote; Governor has a casting vote; minimum four meetings annually.
- Legal Basis: Section 45ZB; decisions binding on the RBI.
Supplementary Liquidity Measures by the RBI
1. Open Market Operations (OMO)
- Action: Purchase of government securities worth ₹1 lakh crore.
- Objective: Inject durable liquidity and stabilise bond yields across maturities.
- Impact: Higher system liquidity, stable call-money rates, and rising bond prices.
2. USD/INR Forex Buy–Sell Swap ($5 billion, 3-year maturity)
- Mechanism: RBI buys dollars now (injecting rupees) and sells them back later.
- Objective: Boost rupee liquidity while moderating forex volatility.
- Significance: Adjusts liquidity without permanently expanding the RBI’s balance sheet (unlike OMO).
- Impact: Improved banking liquidity, predictable hedging costs, and balanced dollar supply.
Overall Significance
Together, the rate cut, optimistic macro forecasts, OMOs, and forex swaps signal a calibrated easing—supporting growth, anchoring inflation expectations, and preserving financial stability. This multi-instrument approach strengthens confidence in India’s macroeconomic resilience.