RBI’s rate cut

THE Reserve Bank of India (RBI) has finally pulled the trigger on a much-anticipated rate cut, lowering the benchmark repo rate by 25 basis points to 6.25 per cent. This marks the first such move in nearly five years and signals a shift in the central bank’s approach to balancing economic growth and inflation. The decision comes at a time when India’s economic momentum has been slowing. With GDP growth projected at 6.7 per cent for FY26 — well below the 8.2 per cent seen in 2023-24 — the RBI appears to be prioritising growth, even as inflation remains above its 4 per cent comfort level. Governor Sanjay Malhotra, in his first policy review, however, dismissed speculation of a prolonged rate-cut cycle. While the move has been welcomed by industry leaders, its impact on borrowing costs remains uncertain, with some saying it is a case of too little, too late. Banks, already facing liquidity constraints, may not immediately pass on the benefits to borrowers even as there are expectations of loan EMIs going down after the rate cut.

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Beyond the monetary policy, the RBI also introduced measures to enhance cybersecurity in financial transactions, requiring banks to shift to the ‘bank.in’ domain and non-banks to ‘fin.in’. Aimed to curb digital fraud and enhance consumer trust in online banking, this additional security measure is welcome in view of the rising cybercrime. Additionally, Malhotra’s deferment of the proposed stringent banking norms that were to be implemented from April 1 hints at a more flexible regulatory stance compared to his predecessor. It offers banks more time to adapt to liquidity and capital requirements without disrupting credit flow.

However, global uncertainties — including volatile energy prices and US monetary policy — continue to pose risks. But, for now, the RBI’s cautious shift reflects an attempt to revive growth without jeopardising financial stability.