As inflation continues its downward trajectory and growth remains lackluster, the Reserve Bank of India (RBI) faces an undeniable crossroads: the time has come for another rate cut. With headline inflation cooling significantly and growth struggling to meet its potential, the RBI has little choice but to act decisively to stimulate the economy.
Recent data highlights that India is no longer grappling with the runaway inflation that dominated economic concerns for much of the past few years. The Consumer Price Index (CPI) inflation now stands at a modest 3.6%, its lowest level in seven months. Furthermore, food inflation is on the decline, driven by an unexpected drop in vegetable prices, bringing the RBI’s long-standing target of 4% closer to being realized. While these positive developments mark an important milestone, they do not tell the whole story. Despite inflation easing, India’s economic growth continues to fall short of its potential.
In the third quarter of FY25, the economy saw a modest growth rebound of 6.2%, up from 5.6% in the previous quarter. However, these figures still pale in comparison to the robust growth the economy is capable of achieving. The sluggish pace of recovery is symptomatic of deeper structural issues—global uncertainties, trade tensions, and geopolitical instability are all weighing heavily on domestic demand. In such a climate, it’s clear that the RBI can no longer afford to remain passive. The shift in priorities is undeniable: the central bank’s focus has moved from combating inflation to supporting growth. The evidence is mounting that the RBI must act quickly to drive economic momentum, and the next logical step is a further 25 basis point cut in the repo rate at the upcoming April meeting.
Some critics will point to global volatility and the potential for imported inflation as reasons to tread carefully. While these concerns are valid, the real risk at this juncture lies in stifling domestic growth. With inflation well under control, the RBI should not allow external pressures to prevent it from fostering an environment conducive to growth. Maintaining a neutral stance amidst external headwinds, as the RBI has done in the past, is merely an excuse for delaying necessary action. Liquidity conditions remain tight despite the central bank’s efforts to ease them, and this continues to stifle credit flow to businesses in desperate need of capital to fuel investment.
The current situation demands more than just cautious optimism or incremental adjustments—it requires bold, decisive action. The RBI must adopt a dovish stance and cut rates further, not only to ease the credit crunch but to send a clear message that economic growth is now the primary focus. A proactive rate cut is not just a desirable policy move, but an essential one if India hopes to maintain its competitive edge in an increasingly globalized economy.
The indicators are clear: inflation is under control, growth is improving but remains insufficient, and liquidity is persistently tight. All signs point to the need for another rate cut. The RBI’s next move must be assertive and unmistakably dovish, signaling that the central bank recognizes the urgent need to prioritize growth in today’s economic environment.
Another rate cut is not merely an adjustment—it is a critical catalyst for a broader economic revival. The time for hesitation is over. India’s economic future depends on bold, proactive policy measures, and the RBI must take that crucial step now.