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1. A Timid Pause Amid Urgency

The unchanged repo rate at 5.5% and a neutral stance reflect excessive caution at a time when  essential. Having already delivered 100 bps cuts since February, the RBI has chosen passivity rather than leadership. The policy betrays an overreliance on “wait and watch” when India is clearly in a moment that calls for pre-emptive easing.

Markets had priced in at least a 25 bps reduction, given that headline inflation remains at just 2.6%, well below the mid-point of RBI’s 2–6% tolerance band. Instead, the MPC clung to orthodoxy and delivered platitudes about “policy space,” wasting an opportunity to align monetary strategy with India’s economic realities.

2. Blindness to Global Headwinds

The Trump administration’s tariff wave continues to erode Indian exports, with MSMEs in textiles, pharma, and engineering absorbing the deepest shocks. A central bank committed to counter-cyclical support would have responded swiftly to these external shocks. Instead, RBI has deferred any meaningful move until December, implicitly accepting further erosion in competitiveness.

In doing so, the RBI has undermined exporters’ confidence that monetary authorities can mitigate global trade shocks, leaving India’s industrial base exposed at a fragile moment.

3. Growth Projections, but No Growth Strategy

Ironically, the RBI upgraded its FY2025–26 GDP forecast from 6.5% to 6.8%, citing reforms and strong Q1 growth (7.8%). But this optimism is hollow when paired with policy inertia. Growth momentum is not self-sustaining; it demands liquidity support and lower financing costs to encourage investment.

The lagged effect of monetary easing makes inaction today particularly damaging: by the time cuts are made, the opportunity to offset trade and tariff disruptions will have passed. This reflects a fundamental disconnect between the forecasted growth narrative and the policy levers deployed.

4. A Disconnected Inflation–Liquidity Logic

With headline inflation below 3% and core inflation at 4.2%, India currently enjoys a benign inflationary environment. Yet, the RBI clings to its conservative script, holding not just the repo but also the MSF and SDF rates unchanged.

Rather than using this window to front-load easing, the MPC chose to preserve “credibility” with international observers. This raises a deeper concern: the RBI seems more focused on external perception management than on domestic realities, betraying its mandate to prioritize India’s growth and financial stability.

5. The Neglect of MSMEs and Sectoral Realities

MSMEs—particularly exporters in textiles, leather, and engineering goods—were looking to the central bank for credit easing or targeted liquidity facilities. Instead, they received vague assurances with no fresh instruments. This detachment from real-sector stress reveals how insulated policymaking has become from the lived realities of entrepreneurs, manufacturers, and job-creating industries.

By ignoring MSMEs, the RBI risks amplifying unemployment, deepening supply-chain disruptions, and weakening India’s competitiveness in a moment when tariff wars and global fragmentation are reshaping trade patterns.

6. Conservative Caution Masquerading as Prudence

In truth, this policy is less about prudence and more about risk-aversion. It sends a troubling signal: the RBI is more comfortable with bureaucratic caution than with bold leadership. At a time when the global economy is fracturing and India faces both opportunities and threats, timidity comes at a high cost.

The policy does not inspire markets, does not reassure exporters, and does not invigorate investment sentiment. It simply sustains the status quo.

A Missed Moment of Leadership

Today’s monetary policy announcement is a case study in missed opportunity. The RBI had a rare alignment of conditions: low inflation, tariff shocks demanding counter-measures, and growth momentum needing reinforcement. Instead of leading with conviction, the MPC chose to fold into procedural neutrality.

This was a moment to cut rates decisively, announce targeted MSME support, and outline a roadmap for proactive easing. Instead, the RBI offered inertia.

In doing so, it risks allowing India’s economic momentum to be stalled by global turbulence and domestic credit fatigue.#RBI
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