RBI’s dovish stance leaves room for more rate cuts if growth softens — Report

NEW DELHI — The Reserve Bank of India’s (RBI) 25 bps repo rate cut and its dovish stance creates scope for further easing in FY27 if growth weakens, while ongoing foreign‑exchange depreciation could improve export competitiveness, a report has said.

The report from HSBC Global Investment Research welcomed the RBI's plans to infuse domestic liquidity in December, saying it could infuse about Rs 1.45 trillion of liquidity.

The RBI unveiled plans of Rs 1 trillion of open market operations purchases and a a 3-year USD/INR buy-sell swap of $5 billion.

HSBC said that its inflation forecasts are about 50 basis points lower than the RBI’s — roughly 3.5 per cent for H1FY27.

The firm forecasted inflation to remain below 4 per cent in FY26 and FY27.

"We believe growth is strong now, but will soften by the March quarter due to fiscal tightening, weaker exports, and the GST boost fading. Fiscal policy will remain tight in a world of fiscal intolerance, and the onus for supporting growth will fall on the RBI," it added.

The RBI cut inflation forecasts, discussed sectors where growth could soften, and assured ample liquidity, the report said.

The central bank's policy was dovish as it lowered inflation forecasts for FY26 and the first half of FY27 by 60 bps and 50 bps, respectively, and raised its GDP projection for FY26 to 7.3 per cent.

"On liquidity, not only is the RBI providing Rs 1.45 trillion worth of funds in December, the governor mentioned that more could be made available if needed," the report noted.

RBI MPC members unanimously decided to reduce the repo rate by 25 basis points to 5.25 per cent from 5.5 per cent earlier to spur growth in the economy.

Analysts said that RBI's decision to cut the repo rate is a move that uses the monetary space created by low inflation to stimulate consumption and strengthen the growth cycle.