Summary:
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The RBI is expected to hold rates steady at its 10:00 a.m. IST decision, with inflation pressures contained and tariff risks easing.
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Recent budget measures to support manufacturing and exports, alongside a trade deal with the US, have improved the policy backdrop.
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Attention is shifting from rates to liquidity conditions, with banks pushing for looser LCR rules.
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State-owned banks face a credit–deposit mismatch, as loan growth outpaces deposits under pressure to lend.
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Analysts warn easing LCR requirements could flatten or pressure the yield curve, leaving the RBI in a policy bind.
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The Reserve Bank of India is set to announce its policy decision at 10:00 a.m. IST, with expectations firmly centred on the central bank leaving interest rates unchanged. The outlook is supported by relatively benign inflation conditions and easing concerns around potential US tariffs, following recent budget measures aimed at boosting manufacturing and exports, as well as a trade deal with Washington.
While a pause in rates is widely anticipated, pressure is building elsewhere in the system. Banks are increasingly lobbying for an easing of liquidity coverage ratio (LCR) requirements, according to analysts. Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital, said state-owned banks face ongoing pressure to deliver stronger credit growth even as deposit growth lags, creating structural strain.
Relaxing LCR rules could help ease that imbalance, but Ganapathy warned it would likely put pressure on the yield curve. As a result, the RBI finds itself in a difficult position, balancing financial stability concerns against the need to support bank lending and economic growth.
Stay tuned for the policy announcement due on just a few minutes time.
The rupee strengthened in the previous session, taking its weekly advance, sparked by the U.S.-India trade deal
