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The Reserve Bank of India’s recent monetary policy approach indicates a deliberate frontloading of rate cuts to strengthen domestic economic growth amid a favorable inflation outlook. A report released by ratings agency Crisil suggests that the central bank is prioritizing growth, anticipating only one more cut to the repo rate in the current financial year (FY26), after which it is expected to pause further easing.

The report forecasts India’s GDP growth at 6.5 per cent for FY26 but highlights potential downside risks arising from recent US tariff hikes, which could pose challenges for external trade. Despite these concerns, Crisil notes that several domestic factors could help insulate the economy from global turbulence.

Strong Macro Buffers To Offset Global Risks

According to Crisil, India’s macroeconomic fundamentals remain robust, aided by a positive outlook on monsoons and stable crude oil prices. "Positive outlook on rains and crude oil prices and healthy external accounts, low current account deficit and low short-term debt, with sufficient forex reserves will provide a buffer against global turbulence,” the report said.

In addition, the report points to supportive policy measures such as income-tax cuts for the middle class and easing food inflation, which are expected to bolster domestic consumption. Crisil also underlines the importance of the 100-basis point cut in the repo rate already implemented, along with a similar reduction in the cash reserve ratio (CRR) scheduled for the second half of the fiscal year, which together will strengthen the transmission of monetary policy to lending rates.

Monetary Transmission Gaining Momentum

Crisil notes that the cumulative monetary easing has already started to influence market and retail interest rates. "Surplus liquidity has enabled transmission of RBI’s rate cuts to market interest rates. Since the central bank’s first rate cut in February 2025, deposit rates decreased 15 bps on average till May, home loan rates 30 bps, and auto loan 20 bps. The sharp increase in liquidity post the CRR cut will further facilitate easing of interest rates,” the report added.

Data-Dependent Approach Ahead

While the Monetary Policy Committee (MPC) has adopted a neutral stance, suggesting future decisions will be driven by incoming data, Crisil believes the space for further monetary intervention may be limited. “A sharp fall in inflation since the previous policy review allowed the MPC to increase monetary support. A healthy monsoon, coupled with low crude prices are likely to keep inflation aligned to the RBI’s 4 per cent target this fiscal,” it said.