RBI Joins Global Rate Cut Trend: How India Compares With Other Economies?

Considering the state of the economy, today's 25 basis point reduction in the repo rate by the RBI was a good and well-timed measure. The Monetary Policy Committee projects that India's GDP will expand by 6.3% to 6.6% in FY 26 and that inflation will drop to 4.26% in the same year. In light of current macroeconomic conditions, the government's decision to adjust the repo rate after a protracted interval is a well-calculated one. Given that this is the first-rate drop in five years, the RBI's decision to lower the repo rate by 25 basis points to 6.25% is noteworthy.

The RBI's 25 basis-point rate cut aligns with the global trend of monetary easing aimed at supporting economic growth. While several advanced economies have already implemented rate cuts, India's move stands out due to the RBI's cautious approach to balancing inflation concerns with growth stability. The rupee has faced pressure in recent months, initially following the US Federal Reserve's rate cut in September and later due to market concerns over Donald Trump's return as US president and his stance on import tariffs. With the dollar remaining strong, further depreciation of the rupee appears likely.

More action in CY25 is indicated by the forecast of inflation approaching 4% in FY26, while the policy stance remains "Neutral." When compared to other emerging economies, India is in a stronger situation overall. The dollar index has risen 7% since the US Fed began cutting interest rates on September 24. In contrast, the INR has only depreciated 4%. Because of careful control of its monetary and fiscal policies, the rupee has been certainly volatile to its Asian and global competitors. With inflation firmly under control and the middle class receiving substantial relief from fiscal initiatives in the FY26 budget, this rate drop is expected to boost economic momentum. In line with the strengthening macroeconomic data, the Reserve Bank of India made a timely and smart step by lowering the repo rate.

Rupee's Resilience: India Well-Positioned Against Global Currency Swings

India is relatively better positioned compared to other Emerging Economies. Since Sept 24, when the US Fed started cutting rates, the dollar index has strengthened 7%, compared to only 4% depreciation seen in INR. The rupee has been the least volatile currency among its Asian and global peers due to prudent fiscal and monetary policy management. We expect this relative outperformance to continue, as per Mr. Krishna Killa, Founder, Ironclad Asset Management.

RBI's Rate Cut Makes India More Attractive for Foreign Investors

With RBI joining the global rate cut trend, liquidity improves, borrowing gets cheaper, and growth sectors like banking, consumption, and Infrastructure could thrive in India's evolving economic landscape. Lower interest rates make India more attractive for Foreign investors, boosting equities and Manufacturing as capital flows chase better returns in a growing economy.

Rate cuts fuel economic expansion, benefitting rate-sensitive sectors like NBFCs, Auto and Real estate- India's growth story gets a fresh push, drawing global attention to its market potential, quoted Kirang Gandhi Pune-based Financial Mentor.

RBI's Rate Cut Aims to Stimulate Growth as Inflation Nears 4% Target

"As anticipated, under the leadership of Sanjay Malhotra, the new governor, the Monetary Policy Committee voted to lower the repo rate by 25 basis points, to 6.25%. India's central bank lowered interest rates in response to mounting worries about the slowing pace of economic expansion and new indications that inflation was getting close to its 4% target. 'NEUTRAL' is the unanimously maintained RBI policy position. The action aligned with market anticipations, as following the Budget 2025, there was a strong belief that the RBI would implement strategies to tackle the issue of slowing economic growth. For the fiscal year 2026, the Reserve Bank of India (RBI) has anticipated a GDP growth rate of 6.7%, representing a modest increase from the 6.4% forecast for the fiscal year 2025," said Ms. Palka Arora Chopra. Director, Master Capital Services Ltd.

"Furthermore, the central bank has adopted a more positive outlook on inflation, projecting it to be 4.2% for FY26, which is 60 basis points lower than the 4.8% estimate for FY25. The governor's address suggests a more adaptable strategy regarding inflation targeting. The proposed measures are expected to enhance the money supply within the economy, improve liquidity, promote borrowing, and stimulate consumer demand. The anticipated action is likely to lower borrowing expenses, which may enhance credit accessibility and stimulate demand across various sectors," added Palka Arora Chopra.

Nevertheless, challenges such as the declining value of the rupee, which could elevate import expenses, along with external economic uncertainties, are critical elements to observe. The declining value of the rupee serves as a significant factor that may affect the Reserve Bank of India's decision, as additional reductions could exert pressure on the Indian rupee and lead to increased capital outflows from the nation, Palka Arora Chopra added.

RBI's 25 bps Cut: A Conservative Step Amid Inflation and Global Risks

In its first meeting under Governor Malhotra, the Reserve Bank of India (RBI) played it safe, carefully balancing between stimulating economic growth and managing inflation. The 25 bps rate cut to 6.25% was more of a measured step than a bold move. While it does offer some relief to liquidity and interest-sensitive sectors, as investor expectations were expecting a deeper cut, and so market reactions were neutral. Given global uncertainties and inflation risks, the central bank seems to be keeping its options open rather than waving a clear easing cycle, as per Trivesh, COO Tradejini.

RBI's Rate Cut: A Boon for Markets, But Inflation Control Remains Key

For the first time in five years, the Reserve Bank of India (RBI) reduced its repo rate by 25 basis points (bps), to 6.25%. In order to combat economic downturns and inflation fears, central banks throughout the world, notably the Bank of England, the Bank of Mexico, and the European Central Bank, have recently decreased rates by 25 basis points, 50 basis points, and 25 basis points, respectively. This action is consistent with global monetary easing. With a real interest rate of 1.03%, India performs on par with or better than other developed economies, such as the US, UK, and EU, even though its repo rate is higher at 6.25%.

"India's rate cut is part of a broader strategy to reduce borrowing costs, stimulate consumer demand, boost corporate profitability, and provide impetus to expansion and higher production due to enhanced consumption. Sectors such as Consumer Durables, Real Estate, NBFCs, and Automobiles are expected to benefit from lower financing costs, leading to potential stock market gains," said Mahendra Patil, Founder and Managing Partner, MP Financial Advisory Services LLP.

The impact on foreign investor sentiment remains mixed. Anticipation of the rate cut has already led to ₹182 billion ($2.09 billion) in foreign bond purchases, reflecting increased investor confidence. However, for sustained foreign investments, the rate cut must translate into higher GDP growth with controlled inflation. Investors will closely monitor whether monetary easing leads to long-term financial stability. While the RBI's move is directed towards revitalizing economic growth, the key challenge is to keep inflation in check while supporting investment-led expansion, Mahendra Patil added.

Stock Market Sectors That May Benefit from the Rate Cut

Sectors most sensitive to interest rate changes are likely to benefit from the RBI's repo rate cut. The banking sector could see a boost in credit growth, while real estate may attract increased investments due to lower financing costs. Additionally, as lower EMIs free up disposable income, consumer durables and FMCG sectors might experience a rise in spending on items like electronics and appliances, as per Trivesh, COO Tradejini.

RBI's Rate Cut: Will Foreign Investors See India as a More Attractive Market?

The RBI's rate cut is positive for liquidity, but immediate attraction for foreign investors may be limited due to ongoing global uncertainties and inflation risks. However, India's strong forex reserves, which stood at $630+ billion as of January 31, 2025, coupled with a stable banking system, offer solid foundations for long-term investment. The return of foreign investors depends not just on the rate cut but on sustained economic growth. If economic growth persists, foreign investors are more likely to return. As inflation control measures become clearer and if global conditions stabilize, India could eventually become a more attractive market, supported by stable growth and resilient economic fundamentals, commented Trivesh.

Fiscal Relief and Rate Cut: A Twin Boost for Housing and Retail Sectors

The Reserve Bank of India's decision to cut the repo rate is a timely and strategic move that aligns with the improving macroeconomic indicators. With inflation well within control and fiscal policies in the FY26 budget offering significant relief to the middle class, this rate cut is set to accelerate economic momentum. A lower cost of borrowing will not only enhance homebuyers' affordability but also stimulate demand across residential, commercial, and retail segments. As a result, we anticipate a surge in new project launches, strengthening the supply pipeline and further driving growth in the real estate sector, as per Mr. Mohit Goel, Managing Director, Omaxe Ltd.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.