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Key Points

The Reserve Bank of India appears to have concluded its current interest rate cutting cycle, according to a detailed report by Union Bank of India. The analysis suggests the terminal repo rate will likely stabilize at 5.50%, with future policy decisions hinging on comprehensive data assessment. Factors like inflation trends, global geopolitical uncertainties, and the U.S. Federal Reserve's rate trajectory will guide upcoming monetary strategies. While rate cuts and liquidity measures are expected to support economic growth, their full impact may take several quarters to materialize.

Key Points: RBI Rate Cut Cycle Ends Union Bank Report Reveals

  • RBI likely to settle terminal repo rate at 5.50%
  • Future policy actions will be data-dependent
  • Credit demand recovery expected in 2-3 quarters
  • CRR cut to improve monetary policy transmission
2 min read

Rate Cut Cycle likely over now, policy to stay data-driven: Union Bank of India Report

Union Bank analysis suggests RBI's rate cut cycle concludes, future monetary policy to remain data-driven and cautious

"We believe that this stealth easing concludes the rate cutting cycle for now - Union Bank of India Report"

New Delhi, June 7

The recent policy actions by the Reserve Bank of India (RBI) appear to mark the end of the current interest rate cutting cycle, according to a report by Union Bank of India.

The report states that the terminal repo rate is now likely to settle at 5.50 per cent, assuming a real interest rate of around 150 basis points and an inflation forecast of 4 per cent for the financial year 2025-26.

It said, "We believe that this stealth easing concludes the rate cutting cycle for now with terminal rate of 5.50 per cent".

The report noted that the RBI's decision to cut policy rates and ease liquidity conditions can be seen as a form of "stealth easing."

The report added that future policy actions will be data-dependent, in line with what RBI Governor Sanjay Malhotra mentioned in his policy statement. The Monetary Policy Committee (MPC) will now assess various factors including inflation trends, global geopolitical uncertainties, and the U.S. Federal Reserve's interest rate trajectory before deciding on any further rate cuts.

The bank pointed out that the rate cuts and liquidity-boosting measures announced by the RBI are likely to aid credit growth, although the impact will take time to reflect in the real economy.

According to the report, a recovery in credit demand could take 2-3 quarters, or even longer, especially if uncertainties in the global environment continue to affect investment sentiment and capital expenditure plans.

In particular, the 100 basis point cut in the Cash Reserve Ratio (CRR), to be implemented in four tranches, is expected to play a key role in improving the transmission of monetary policy.

The report stated the CRR cut will help improve the money multiplier effect, reduce the cost of funds for banks, and support a rise in net interest margins (NIMs).

Governor Malhotra had noted that the CRR cut could boost banking system NIMs by around 7 basis points, helping banks absorb some of the pressure caused by the 50 basis point repo rate cut, which leads to faster repricing of loans linked to external benchmarks.

Overall, the report believed that the frontloaded rate easing, combined with liquidity support measures, will aid growth, though their full effect will be visible only with a time lag.

- ANI

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Reader Comments

Here are 5 diverse Indian perspective comments for the article:
R
Rahul K.
Finally some relief for home loan borrowers! 🏠 The repo rate cut combined with CRR reduction should make EMIs slightly lighter. Though as mentioned, it may take 6-9 months to see full impact. RBI is playing it smart by being data-driven in these uncertain global times.
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Priya M.
As a small business owner, I welcome these measures but wish the transmission was faster. Banks are quick to increase loan rates when RBI hikes, but take ages to pass on cuts. Hope this CRR reduction forces them to act quicker. Our working capital needs urgent relief!
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Arvind S.
RBI is walking a tightrope between controlling inflation and supporting growth. 5.5% terminal rate seems reasonable for now. But they should monitor food prices closely - one bad monsoon and inflation could spike again. Better to be cautious than sorry.
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Sunita R.
Fixed deposit investors like me are disappointed 😔 Every rate cut reduces our interest income. With inflation at 4%, real returns are becoming negligible. Maybe time to look at other investment options though they come with higher risks.
V
Vikram J.
Good analysis by Union Bank. The phased CRR cut is particularly clever - gives banks time to adjust while ensuring liquidity. Hope this boosts credit flow to manufacturing sector which needs capital for expansion. Jai Make in India! 🇮🇳

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