RBI Monetary Policy Outlook: Rate Cut Expected; LAF Corridor Can be Widened 5p1z6v

By: Amar Ambani, Executive Director, YES SECURITIES, on the RBI Monetary Policy Committee (MPC) outcome:

A 25 basis point (bps) rate cut by the Reserve Bank of India (RBI) now appears to be a foregone conclusion. In addition to the rate cut, we see a possibility that the RBI may widen the Liquidity Adjustment Facility (LAF) corridor by increasing the spread between the repo rate and the Standing Deposit Facility (SDF) rate to 50 bps, up from the current 25 bps.

Such a move would aim to discourage banks from engaging in risk-free arbitrage—borrowing via the triparty repo market and parking excess funds in the SDF. Instead, it would incentivise greater lending activity. This adjustment in the corridor could help redirect surplus liquidity toward productive credit deployment, especially crucial at a time when credit growth momentum appears to be slowing.