The Reserve Bank of India’s (RBI) recent decision to cut the policy interest rates is expected to drive demand across multiple sectors of the economy, according to a top industry body. The RBI, in a bid to provide greater flexibility to address macroeconomic conditions, announced a 25 basis point reduction in the repo rate, bringing it down to 6.25 percent.

Sanjay Nayar, President of the Associated Chambers of Commerce and Industry of India (ASSOCHAM), stated that the rate cut would provide a significant boost to key sectors such as housing, automobiles, and consumer durables, among others. He emphasized that a decrease in borrowing costs not only encourages demand but also strengthens corporate balance sheets. “Any drop in the cost of borrowing gives a positive push not only to the demand side of the economy but also helps corporate balance sheets”, Nayar added.

The RBI's Monetary Policy Committee (MPC) maintained the inflation forecast unchanged for the current financial year, reassuring markets and businesses that inflation would remain under control. Nayar expressed confidence that if inflation continues to decline, the RBI might consider further rate cuts in the coming quarters. He highlighted that inflation has moderated and is expected to align more closely with the RBI’s target in the near future.

ASSOCHAM also expressed confidence that the RBI, with the support of the government, would maintain stability in the foreign exchange market, particularly amid pressures from the rising US dollar on emerging markets. Nayar noted the importance of closely monitoring global geopolitical tensions and protectionist trade policies from major economies, while affirming that India's fiscal and monetary policies are responding appropriately to these challenges.

The industry body also lauded the RBI’s timely decision to start the easing cycle with a 25-basis point cut. The move, according to C.S. Setty, Chairman of the State Bank of India (SBI), was well-communicated and made in the right context. He pointed out that the RBI's growth and inflation forecasts for FY26 reflect a careful balancing act between supporting growth and keeping inflation in check. 

Additionally, Setty welcomed the RBI's regulatory changes, including updates on forward contracts, the review of the trade settling cycle, and enhanced cybersecurity measures for banks and payment systems. These reforms, Setty noted, would promote better price discovery, widen the participant base, and build trust in the country’s digital banking infrastructure.

The 25 basis point repo rate cut is the first reduction since May 2020. The move is expected to spur consumption and investment, further supporting India's economic recovery.