No Result
View All Result
SUBMIT YOUR ARTICLES
  • Login
Thursday, October 23, 2025
TheAdviserMagazine.com
  • Home
  • Financial Planning
    • Financial Planning
    • Personal Finance
  • Market Research
    • Business
    • Investing
    • Money
    • Economy
    • Markets
    • Stocks
    • Trading
  • 401k Plans
  • College
  • IRS & Taxes
  • Estate Plans
  • Social Security
  • Medicare
  • Legal
  • Home
  • Financial Planning
    • Financial Planning
    • Personal Finance
  • Market Research
    • Business
    • Investing
    • Money
    • Economy
    • Markets
    • Stocks
    • Trading
  • 401k Plans
  • College
  • IRS & Taxes
  • Estate Plans
  • Social Security
  • Medicare
  • Legal
No Result
View All Result
TheAdviserMagazine.com
No Result
View All Result
Home Market Research Business

RBI policy – Is it neutral or accommodative?

by TheAdviserMagazine
7 months ago
in Business
Reading Time: 3 mins read
A A
RBI policy – Is it neutral or accommodative?
Share on FacebookShare on TwitterShare on LInkedIn


Over the last few months, there has been a distinct shift in the focus of monetary policy towards growth as inflation pressures have subsided. From December 2024 onwards RBI has focused on infusing durable liquidity to make conditions conducive for transmission and credit off-take. Durable liquidity infusion implemented and announced is estimated at INR6.2tn via three main instruments – CRR cut, OMO purchase and USDINR buy-sell swaps. RBI has subsequently cut policy rate by 25bps in February and is expected to cut further in upcoming policies. The sharp fall in inflation pressures has opened space to further reduce interest rates.

Growth conditions are not that weak, but there is a loss of momentum due to downward pressure exerted by monetary policy, fiscal policy, and credit impulse. Monetary policy became tight last year due to substantial FX sales undertaken by the RBI to limit depreciation pressure on INR. This resulted in interbank liquidity deficit surging to INR2tn in January 2025 from surplus conditions till November 2024. At the same time, fiscal policy also turned inadvertently contractionary with sharp slowdown in capital expenditure by the government both Centre and the state government. Meanwhile, the combination of tight liquidity conditions and macro prudential norms resulted in credit impulse slowdown.

Monetary policy is now changing gears and is focusing more on growth, with inflation pressures behind us. The large liquidity inflation and one rate cut in February raises the question is monetary policy stance really neutral or has it become accommodative? To answer this, we look at real policy rates and impact on liquidity. Real policy rates are currently 2.5%, based on Q4FY25 inflation estimate of 3.8%. This is considered clearly restrictive as per RBI’s estimate of the neutral real rate, which is between 1.4% to 1.9%. Based on our Q4FY26 inflation estimate of 4.0%, real rates remain in a restrictive zone at 2.3%. Hence, RBI will need to cut policy rates by at least 50bps further to get real policy rates in the neutral zone. Hence, we expect a 25bps cut in April and a 25bps cut in June, just to ensure monetary policy remains neutral. The neutral policy stance implies that monetary policy doesn’t have positive or negative impact on growth.

Now let’s look at liquidity, what has been the impact of the substantial durable liquidity infusion. System liquidity deficit remains elevated at INR1.5tn in March 2025. Incorporating pick-up in government expenditure and the liquidity infusion to be conducted in the remainder of March 2025, system liquidity deficit could end in a mild surplus or mild deficit. So is this accommodative policy or is it just getting liquidity settings to neutral from restrictive. Note, RBI will need to infuse INR2tn of durable liquidity in FY26 to ensure that system liquidity is a mild positive. We look at the growth of RBI balance sheet to get a sense of quantitative easing taking place. As of March 7th 2025, RBI balance sheet growth is tracking at 7% which has risen from 5.4% as of November 2024. This is still below nominal GDP growth and hence as % of GDP, RBI balance sheet size is reducing. We estimate by March-end 2025, RBI balance sheet as a % of GDP could be 23% which is slightly below last year levels (23.6% in FY24). Hence despite the incredible quantum of liquidity infusion, from a liquidity standpoint, monetary policy is moving from contractionary to neutral setting. The lion share of the liquidity infusion has already taken place under the neutral stance.

There is another factor which we haven’t discussed, which is the signaling utility of policy stance. During Dr Patra’s tenor, the stance was de-linked from liquidity conditions and linked to future policy rate path, i.e, signaling. A neutral stance implies that the probability of a rate hike and a cut is equal. An accommodative stance implies that rate hikes are off the table and a deeper rate cut cycle is on the cards. The last time the stance was changed from neutral to accommodative was in June 2019 and the stance was retained till Feb 2022. Over this period the policy rate was reduced by 200bps. Given our expectation of an additional 50bps cut in the remainder of 2025, a change in stance isn’t required as it’s a shallow rate cut cycle. Another factor is the uncertainty on Fed policy given the uncertainty due to tariffs and changing fiscal policy. The latest Fed dot plot indicates that despite a growth slowdown in the US, the majority of members only see a 50bps cut in 2025. A neutral policy stance makes sense in the case of a shallow rate cut cycle and heightened global uncertainty.

Live Events

A neutral stance is perfect for monetary policy navigating highly volatile global environment. Central banks globally are taking decisions meeting-by-meeting, retaining policy flexibility to respond to changing domestic and external impulses. (The author of the article is Gaura Sengupta, Chief Economist, IDFC FIRST Bank)



Source link

Tags: accommodativeneutralPolicyrbi
ShareTweetShare
Previous Post

REITs and InvITs shine with strong performance: Time for phase 2 reforms

Next Post

Mercuryo CEO: Crypto’s Arrival on the World Stage Won’t Be a ‘Eureka Moment’

Related Posts

edit post
Tesla’s weak earnings show how the ‘Musk Magic’ Premium is inflating its share price

Tesla’s weak earnings show how the ‘Musk Magic’ Premium is inflating its share price

by TheAdviserMagazine
October 23, 2025
0

Over the past year, on the day after Tesla unveils its latest quarterly report, this writer has calculated a metric...

edit post
One Nation, One Workforce: Govt plans integrated system to ensure social-security portability for all workers

One Nation, One Workforce: Govt plans integrated system to ensure social-security portability for all workers

by TheAdviserMagazine
October 23, 2025
0

New Delhi: The ministry of labour and employment plans to build a unified One Nation Integrated Workforce Architecture that will...

edit post
NYC mayoral candidates turn on each other in final debate: ‘Zohran, your resume could fit on a cocktail napkin. And, Andrew, your failures could fill a public school library in New York City’

NYC mayoral candidates turn on each other in final debate: ‘Zohran, your resume could fit on a cocktail napkin. And, Andrew, your failures could fill a public school library in New York City’

by TheAdviserMagazine
October 23, 2025
0

 Zohran Mamdani was attacked over his thin resume, Republican Curtis Sliwa strove to prove his seriousness as a candidate and...

edit post
Corporate debt surge: Commercial paper issuances hit highest since April

Corporate debt surge: Commercial paper issuances hit highest since April

by TheAdviserMagazine
October 23, 2025
0

Indian companies increased their reliance on the debt money market for their short-term working capital needs with the issuance value...

edit post
Kim Kardashian invests in micro-drama platform GammaTime

Kim Kardashian invests in micro-drama platform GammaTime

by TheAdviserMagazine
October 23, 2025
0

Israeli-US startup GammaTime, founded by Israeli gaming entrepreneur Slava Mudrykh, Miramax CEO Bill Block and Alex Montalvo, is joining...

edit post
Israeli joint venture wins huge Indian army rifle deal

Israeli joint venture wins huge Indian army rifle deal

by TheAdviserMagazine
October 23, 2025
0

The Indian Army is procuring 425,000 CQB carbine assault rifles from PLR Systems, a joint venture between Israel Weapons...

Next Post
edit post
Mercuryo CEO: Crypto’s Arrival on the World Stage Won’t Be a ‘Eureka Moment’

Mercuryo CEO: Crypto’s Arrival on the World Stage Won’t Be a ‘Eureka Moment’

edit post
Bridging the Gap: Why Intergenerational Learning is Crucial Now More Than Ever

Bridging the Gap: Why Intergenerational Learning is Crucial Now More Than Ever

  • Trending
  • Comments
  • Latest
edit post
77-year-old popular furniture retailer closes store locations

77-year-old popular furniture retailer closes store locations

October 18, 2025
edit post
Pennsylvania House of Representatives Rejects Update to Child Custody Laws

Pennsylvania House of Representatives Rejects Update to Child Custody Laws

October 7, 2025
edit post
What to Do When a Loved One Dies in North Carolina

What to Do When a Loved One Dies in North Carolina

October 8, 2025
edit post
Probate vs. Non-Probate Assets: What’s the Difference?

Probate vs. Non-Probate Assets: What’s the Difference?

October 17, 2025
edit post
California Attorney Pleads Guilty For Role In 2M Ponzi Scheme

California Attorney Pleads Guilty For Role In $912M Ponzi Scheme

October 15, 2025
edit post
Baby Boomers Are Flocking to This Florida Town — but Not for the Weather

Baby Boomers Are Flocking to This Florida Town — but Not for the Weather

October 9, 2025
edit post
One Nation, One Workforce: Govt plans integrated system to ensure social-security portability for all workers

One Nation, One Workforce: Govt plans integrated system to ensure social-security portability for all workers

0
edit post
How the IBX biosimilar strategy lowers specialty drug costs

How the IBX biosimilar strategy lowers specialty drug costs

0
edit post
Why Planning Is So Hard

Why Planning Is So Hard

0
edit post
Reward and Retribution Is the New U.S. Policy for Latin America

Reward and Retribution Is the New U.S. Policy for Latin America

0
edit post
Fed To Join Payments Revolution, Bring Crypto In From the Fringes

Fed To Join Payments Revolution, Bring Crypto In From the Fringes

0
edit post
‘Cash, precious metals, crypto’ is new norm for peak stock market risk

‘Cash, precious metals, crypto’ is new norm for peak stock market risk

0
edit post
Tesla’s weak earnings show how the ‘Musk Magic’ Premium is inflating its share price

Tesla’s weak earnings show how the ‘Musk Magic’ Premium is inflating its share price

October 23, 2025
edit post
‘Cash, precious metals, crypto’ is new norm for peak stock market risk

‘Cash, precious metals, crypto’ is new norm for peak stock market risk

October 23, 2025
edit post
One Nation, One Workforce: Govt plans integrated system to ensure social-security portability for all workers

One Nation, One Workforce: Govt plans integrated system to ensure social-security portability for all workers

October 23, 2025
edit post
Reward and Retribution Is the New U.S. Policy for Latin America

Reward and Retribution Is the New U.S. Policy for Latin America

October 23, 2025
edit post
Glassnode identifies concentrated Bitcoin selling amid market consolidation

Glassnode identifies concentrated Bitcoin selling amid market consolidation

October 23, 2025
edit post
20 of the Best Job Search Sites for Finding Work

20 of the Best Job Search Sites for Finding Work

October 23, 2025
The Adviser Magazine

The first and only national digital and print magazine that connects individuals, families, and businesses to Fee-Only financial advisers, accountants, attorneys and college guidance counselors.

CATEGORIES

  • 401k Plans
  • Business
  • College
  • Cryptocurrency
  • Economy
  • Estate Plans
  • Financial Planning
  • Investing
  • IRS & Taxes
  • Legal
  • Market Analysis
  • Markets
  • Medicare
  • Money
  • Personal Finance
  • Social Security
  • Startups
  • Stock Market
  • Trading

LATEST UPDATES

  • Tesla’s weak earnings show how the ‘Musk Magic’ Premium is inflating its share price
  • ‘Cash, precious metals, crypto’ is new norm for peak stock market risk
  • One Nation, One Workforce: Govt plans integrated system to ensure social-security portability for all workers
  • Our Great Privacy Policy
  • Terms of Use, Legal Notices & Disclosures
  • Contact us
  • About Us

© Copyright 2024 All Rights Reserved
See articles for original source and related links to external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
No Result
View All Result
  • Home
  • Financial Planning
    • Financial Planning
    • Personal Finance
  • Market Research
    • Business
    • Investing
    • Money
    • Economy
    • Markets
    • Stocks
    • Trading
  • 401k Plans
  • College
  • IRS & Taxes
  • Estate Plans
  • Social Security
  • Medicare
  • Legal

© Copyright 2024 All Rights Reserved
See articles for original source and related links to external sites.