RBI Monetary Policy: Is the rate cut a growth pill to boost demand? Here’s what it means for the Indian economy | Stock Market News

The Monetary Policy Committee (MPC) of the Reserve Bank of India, led by Governor Sanjay Malhotra, has proposed a new repo rate of 6.25%. The new rate is likely to spur demand for retail loans, which should further boost liquidity in the economy, and therefore encourage consumption and boost economic growth.

The bankers welcomed the Reserve Bank’s decision to cut the benchmark lending rate by 25 basis points saying it will spur growth and complement the announcements made in the budget.

They also hailed RBI’s announcement to defer the implementation of the revised liquidity coverage ratio by one year.

“Since the budget has proposed measures to propel domestic consumption and higher government capex, this rate reduction from RBI would further support growth,” industry lobby grouping IBA’s chairman M V Rao said in a statement.

The 25 basis points cut in repo rate was along expected lines, he added.

The “Governor has indicated that the proposed Liquidity Coverage Ratio (LCR) as well as project financing norms will get deferred by a year, and are not to be implemented before March 31, 2026. This additional time will help banks to adhere to the implementation aspects. It is a welcome move,” Rao said.

Swapnil Aggarwal, Director, VSRK Capital

Lower interest rates will directly benefit sectors that rely heavily on credit. The real estate market is most likely to grow further as the availability of home loans increases. With this scenario, housing demand would increase and help the automobile sector to witness an improvement in the sales of vehicles as it is easier for customers to have easy access to credit, thus facilitating the growth of small and medium enterprises by increasing employment. The liquidity conditions are expected to become more favorable for investment in the sectors that have further growth in the offing.

The stock market is likely to respond substantially to this rate cut as money supply will grow, which is going to affect the banking and NBFC sectors more.

In addition to sector-specific impacts, the rate cut is likely to boost overall investment sentiment, attracting greater capital inflows and enhancing market confidence. With more money circulating in the economy, consumer spending is expected to rise, further bolstering business activity. However, the RBI remains vigilant regarding inflationary pressures and will closely monitor economic conditions.

This change in policy is strategic in expanding the economy while ensuring financial stability. With the easing of borrowing costs, investment, household spending, and most importantly, business adaptation to changing economic directions are expected to improve. The policy decision reflects a commitment to achieving growth while maintaining macroeconomic stability.

Country’s largest lender SBI’s chairman C S Setty said the decision to start the easing cycle with the 25 basis points cut is timely, contextual and also well communicated.

He also seemed to welcome the changes on the regulatory front, saying the focus on making the transition seamless and non-disruptive is welcome.

“The regulatory announcement on forward contract, reviewing trade settling cycle and addressing cyber security in banks and payment systems will ensure better price discovery, more broad basing of participants and ensuring trust in digital banking,” Setty added.

“Though additional liquidity measures are not proposed in the policy, the Governor has urged the banks to play actively in the uncollateralised call money market to make it deeper and vibrant for better signal extraction from the weighted average call money rate,” IBA’s Rao said.

AU Small Finance Bank’s executive director and deputy chief executive Uttam Tibrewal said the RBI Governor’s maiden speech indicated his preference to revive growth under the flexible inflation targeting framework and will pave the way for potential further easing of interest rates.

Foreign lender Standard Chartered Bank’s chief executive officer for India and South Asia Zarin Daruwala said the 25 basis points repo rate reduction after a hiatus of five years is a positive move and could signal the start of a rate cutting cycle.

“Given the uncertain global environment, this cut along with the recent tax relief to individuals, should help a rebound in economic activity. The MPC’s confidence around moderating inflation augurs well for sustained economic growth,” she said.

Among the non-banks, Rajiv Sabharwal of Tata Capital, said the policy rate cut is a well-calibrated step that reflects confidence in India’s economic resilience while maintaining financial stability.

“This move will ease borrowing costs, supporting credit expansion, particularly in rural and semi-urban segments, where demand continues to strengthen,” he added.

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