RBI Cuts Rates to Spur Growth; Capital Outflow, Rupee Risks Remain

• RBI cut policy rate by 0.25% to 5.25%, aiming to bolster domestic growth amid 8% GDP growth in H1 FY2025-26 and low inflation.
• The move seeks to stimulate consumption and investment, despite sluggish credit expansion (10% growth) even after previous rate reductions.
• Risks include a narrowing interest rate gap with the US, potentially leading to capital outflows and rupee depreciation (recently ₹90/USD).
• Delayed US-India trade deal poses headwinds for exports, adding pressure on the current account and foreign exchange reserves.
• India's FY2025-26 growth is projected to be 7.5%-7.8%, a slight moderation but still strong compared to global peers.

Why It Matters: RBI rate cut aims to boost growth but risks capital outflow and rupee depreciation.