In a bold and unexpected move, the Reserve Bank of India (RBI) recently announced a 50 basis point cut in the repo rate and a 100 basis point cut in the cash reserve ratio (CRR). This action is aimed squarely at boosting liquidity, stimulating credit growth, and reviving economic momentum in the backdrop of global uncertainties and a mixed domestic outlook.

But while this marks one of the most aggressive stances in recent times, experts believe that the RBI might not yet be done with its rate-cutting cycle.

Understanding the Monetary Policy Moves

The repo rate, which is the rate at which RBI lends to banks, has been reduced by 50 basis points, lowering the cost of funds across the banking system. Alongside, the CRR, or the percentage of total deposits that banks must park with the RBI without earning interest, has been slashed by 100 basis points, a surprise move that adds significantly more liquidity into the system.

This combination of tools serves a dual purpose:

• Make borrowing cheaper for businesses and individuals

• Free up bank funds to enable more aggressive lending

According to Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India (SBI), this action could unlock nearly ₹2.5 lakh crore in additional lending capacity.

Credit Growth to Get a Festive Season Boost

The timing of the CRR cut, effective from September, appears to be no accident. Ghosh notes that this aligns with the start of the busy credit season, which includes festive sales, agricultural financing, and infrastructure activities.

“The CRR cut will support credit growth and help the economy without risking asset bubbles,” said Ghosh.

With this liquidity support, the overall credit growth in the country could climb to around 13%, led particularly by retail lending, such as home, auto, and personal loans.

Are More Rate Cuts Coming?

Despite the aggressive nature of the latest policy, Ghosh believes there is still a possibility of another rate cut, albeit a small one. This will depend on how economic growth pans out in the coming quarters and whether inflation remains under control.

“We are possibly towards the end of the rate cut cycle, but we are not yet there,” he said.

In other words, RBI is keeping its options open, ready to respond to changing economic indicators. The terminal rate (i.e., the lowest point in the interest rate cycle) may not have been reached yet.

Investment Activity to Pick Up Later in the Year

While monetary support is robust, investment activity remains uneven. Ghosh highlighted that public capital expenditure (capex) has been slow in the initial part of the financial year. However, this pattern may follow last year’s trend where spending picked up sharply in the second half.

States are expected to lead the capex drive, especially in infrastructure projects like roads, railways, irrigation, and renewable energy.

This back-loaded spending will likely complement the liquidity infusion, creating a multi-pronged growth support framework for the economy.

Growth Outlook: Achievable Yet Cautious

The RBI has retained its GDP growth forecast at 6.5%, and Ghosh believes this number is achievable, though not without risks. His personal estimate stands slightly lower, at 6.3%, considering monsoon variability and global geopolitical tensions.

“We have to be cautiously optimistic,” he said, pointing to global oil prices, China’s demand recovery, and local inflation trends as variables that could influence the final growth outcome.

Role of Money Multiplier and Digital Trends

Interestingly, Ghosh also noted a rising money multiplier in the economy, which means each rupee of base money is leading to a greater increase in overall money supply. This is partly due to:

• Lower currency leakage, i.e., more money staying in the banking system rather than in cash

• Rapid digitisation across payments, transactions, and financial services

These structural improvements are helping maintain healthy money supply growth, even as reserve money expansion slows due to cautious RBI balance sheet management.

Is Inflation Under Control?

Another key question is whether these moves could trigger inflationary pressures. According to Ghosh, this risk is limited in India’s case.

“In India, the link between asset price inflation and monetary policy is not that strong,” he said.

This implies that the RBI’s liquidity injection will likely spur productive investment and credit activity, rather than inflating asset prices like real estate or equities disproportionately.

RBI’s Balanced Yet Pro-Growth Approach

Overall, the RBI has delivered a calibrated and growth-oriented monetary policy that blends short-term support with long-term structural signals. The combination of repo and CRR cuts reflects:

• A desire to front-load policy support before global risks escalate

• An intent to boost lending capacity in preparation for upcoming demand cycles

• A continued focus on inflation monitoring, allowing for more action if needed

What to Expect in the Coming Months

Here’s what businesses, borrowers, and investors can expect:

1. Cheaper loans and more credit availability for both individuals and SMEs

2. Delayed but impactful public infrastructure investments from both the Centre and states

3. Monitoring of inflation trends to decide further monetary actions

4. Improved money supply thanks to better banking penetration and digital adoption

5. Stable asset prices as inflationary pass-through remains muted

Conclusion: A Thoughtful Step, Not the Final One

RBI’s recent policy move is both decisive and forward-looking, designed to kick-start growth without stoking inflation fears. The dual rate cuts will inject liquidity, stimulate credit, and support retail consumption and investment demand.

But as Soumya Kanti Ghosh cautions, “we are not yet at the end of the easing cycle.” The RBI is likely to stay flexible, watching how the economy absorbs the stimulus and whether growth momentum picks up sustainably.

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