The Reserve Bank of India’s (RBI) recent measures to inject liquidity into the banking system and lower policy rates are being seen more as short-term safeguards rather than immediate stimulants for domestic demand, according to leading bankers and analysts.
Despite cutting its benchmark rate for the second consecutive time and infusing more than $70 billion into the system, experts remain cautious about the extent of its impact.
On 9 April, the RBI lowered the repo rate by 25 basis points to 6 per cent, marking its second such move in as many meetings. Alongside this, it revised India’s growth forecast for the 2025–26 fiscal year down by 20 basis points to 6.5 per cent.
Since January, the central bank has undertaken several liquidity-boosting measures, including bond purchases and long-term foreign exchange swaps, resulting in the infusion of substantial funds into the banking sector.
While these moves have been described as a welcome relief for banks, their ability to significantly lift India’s economic momentum remains limited. Many industry leaders believe the steps will only help avert further deceleration rather than actively fuel recovery.
India’s GDP growth is estimated to have dipped to a four-year low of 6.5 per cent in the financial year ending 31 March 2025.
Sashidhar Jagdishan, Chief Executive Officer of HDFC Bank, India’s largest private sector bank by assets, acknowledged the RBI’s actions but expressed concern over rising global uncertainty.
“The measures provide relief, but the global macroeconomic environment has become increasingly unpredictable due to recent tariff-related moves and market volatility,” he said.
Bankers noted that corporate India has adopted a cautious, wait-and-watch approach. “Corporates are looking for clarity before committing to long-term investment,” added Jagdishan.
Despite the massive liquidity push, the effectiveness of the RBI’s strategy is under scrutiny. Banks are currently parking around ₹2 trillion (approximately $23.4 billion) with the RBI’s overnight facility—considerably more than the ₹750 billion deposited in January—indicating that this surplus liquidity is not translating into increased lending.
Moreover, lending rates have begun to fall and corporate bond yields have declined by 45 to 60 basis points across maturities. However, these shifts have not been enough to reignite private sector investment.
Alka Anbarasu, Associate Managing Director at Moody’s Ratings, remarked, “Neither the higher liquidity nor the rate cuts are significant enough to spur corporate loan growth.”
Economic experts warn that private capital expenditure may slow even further due to uncertainties arising from global trade tensions. “Private investment is a forward-looking decision and is more dependent on demand than the cost of capital,” explained Gaura Sen Gupta, an economist with IDFC FIRST Bank.
On the inflation front, the RBI appears to have room to manoeuvre. Inflation dipped below the 4 per cent target in February and March and is expected to remain near that level throughout 2025–26.
A source familiar with the RBI’s internal deliberations said the central bank sees monetary easing as a tool to counter further downside risks to growth. However, they acknowledged that such policies work with a time lag of six to nine months.
While monetary support is helpful, many believe it is not sufficient. Most analysts argue that the government will need to adopt supportive fiscal policies if the economic outlook remains fragile.
“The fiscal stance remains broadly neutral at the moment,” said Sen Gupta. “It is the RBI that’s currently carrying the load. For growth to genuinely pick up, the government must also step in with fiscal support.”
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