The outcome of the RBI’s first Monetary Policy Committee (MPC) meeting for the financial year 2025–26 has been announced today, confirming a 25 basis point cut in the repo rate, bringing it down to 6%. This rate cut was widely anticipated by experts.
Sharing a thorough examination: Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities said:
RBI announced its second interest rate cut in a row from 6.25% to 6%. The Consumer Price Inflation (CPI) fell to one of its lowest levels in six years to 3.6%. Since the inflation is well within RBI’s comfort level they decided to go ahead with rate cut to support growth which hit a six quarter low in September 2024 of 5.6%. The RBI also changed the stance from neutral to accommodative. However, what truly stood out wasn’t the decision—but the candid admission by the Governor on the global trade uncertainties.
He highlighted how unresolved geopolitical tensions and tariff wars are clouding the global growth outlook. The most striking remark came when he acknowledged the limits of even the central bank’s own capacity to quantify the full impact of these uncertainties.
When the Governor sitting in the highest chair says he can’t quantify the adverse impact, it tells you the level of unpredictability we are dealing with, is the sentiment echoed across market circles. This uncertainty is also visible in higher volatility index readings (depicted in the chart below), not only in India but in the US equities and bond markets as well.
The MOVE index which measures volatility in US bond markets is up 40% this month and is trading near 2022 peak. CBOE VIX which measures the volatility in S&P 500 is at 52 which is third highest reading after 2008 and 2020.
The rare transparency by the new Governor is not only sobering but also a reminder that macroeconomic forecasting in the current environment is as much art as science.
The takeaway? While the domestic economy remains resilient on many fronts, the external environment is anything but predictable—and policy navigation will need to remain flexible and responsive. Going ahead, markets are expected to remain volatile till the Tariff related dust settles.
