Firstly, the Monetary Policy Committee noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures is still unfolding; therefore, it considered it prudent to wait for the impact of policy actions to play out and for greater clarity to emerge before charting the next course of action.
Secondly, the rate pause today suggests INR weakness likely played a key role in the RBI’s monetary policy reaction function. The Indian rupee was one of the weakest regional currencies last month, weighed down not only by elevated tariffs on goods exports to the States, but also by potential setbacks to software exports from the recent announcement of higher H-1B visa fees by the US.
This suggests that for the RBI to consider further rate cuts, there must be clear evidence that the drag from tariffs on GDP growth is significant, and that the recent goods and service tax reductions are effectively translating into lower inflation.
