New Delhi, Feb. 10 -- Last week's monetary policy meeting has several firsts to its credit: It was the first of 2025, the first under a new governor of the Reserve Bank of India (RBI), the first since Donald Trump became US president, and the first in five years to cut the repo rate. The policy pivot was widely expected: Recent off-policy measures to infuse liquidity already signalled a high chance of the same.

The banking system has been facing a severe liquidity deficit since December. Total money created by the RBI-or base money-grew by 3.5% (year-on-year) in the week ending 24 January, far lower than the 6.3% growth in the comparable week of 2024. Growth in 'broad money' has also slowed down. Some of this systemic tightness was due t...