RBI Likely To Slash Key Rates In MPC, Could Change Stance To ‘Accomodative’: Emkay Global

The move would reflect growing concern about India’s exposure to global market volatility, especially as trade war fears and a shift in investor sentiment weigh on emerging market assets.

According to Emkay, the RBI’s response will need to be dynamic as the external environment continues to evolve.

Source : PTI

With the global economy rattled by escalating trade tensions and rising fears of a slowdown, the Reserve Bank of India (RBI) is likely to announce a 25 basis point rate cut on April 9, according to a note by Emkay Global Financial Services.

The central bank’s Monetary Policy Committee (MPC) began its meeting on Monday. The report suggested that alongside the rate cut, the RBI may also revise its policy stance to “accommodative,” signalling a more supportive monetary environment ahead, reported IANS.

The move would reflect growing concern about India’s exposure to global market volatility, especially as trade war fears and a shift in investor sentiment weigh on emerging market assets.

“The extent to which this global trade war could stretch is unclear. Monetary policy may have to do the heavy lifting in India by being more countercyclical than fiscal this year. Implications for India could stem from both, global financial market disruptions and real sector hit,” Emkay noted.

Liquidity Management Tools on the Table

Despite expectations of a rate cut, the report cautioned that the RBI may avoid aggressive easing in the short term, opting instead for a measured approach given the fluid state of global financial markets. Rather than frontloading rate reductions, the central bank may turn to alternative tools to support liquidity and credit flow.

“Options like non-conventional easing in the form of easier regulatory (lending) norms, lower daily CRR requirement for banks to sub 90 per cent, sterilised INR management, etc may be used, if needed,” the note said.

There could also be changes to the current liquidity framework, with a potential shift toward using daily variable rate repos (VRRs) as the main tool for managing asset-liability mismatches and liquidity needs, replacing the 14-day VRR currently in use.

According to Emkay, the RBI’s response will need to be dynamic as the external environment continues to evolve. “The fluid global dynamics will require the RBI to be nimble in managing any risk of tighter financial conditions, especially as the shock to sentiment/capital flows is likely to require higher risk premia from EMs,” the report said.

Asia Watching China’s Next Move

Ankita Pathak, Macro Strategist and Global Equities Fund Advisor at Ionic Asset by Angel One, echoed similar expectations, forecasting a 25bps rate cut alongside a shift in policy stance to “accommodative.”

“India is relatively better than the rest of Asia as far as tariffs are concerned, but it is unlikely that it will not see any ripple effect from a global slowdown. China’s response to Trump’s tariffs will be important for Asian central banks (including the Indian RBI) and will chart the course for both currency and rates,” Pathak noted.