A further Fed interest rate cut holds the potential to stoke inflation by increasing the money supply and encouraging a spending and borrowing spree.....

 A further interest rate cut by the Federal Reserve (Fed) could fuel inflation and inflation expectations by encouraging a flood of spending and investment into an already strong economy. In contrast, rate cuts are conventionally used to stimulate growth when the economy is sluggish. The risk of stoking inflation is particularly high when a country's economic growth is already robust.

How interest rate cuts spur inflation

Encourages borrowing and spending: The Fed lowers the federal funds rate, which is the interest rate banks charge each other for overnight loans. This action causes other interest rates to fall throughout the economy, including mortgage rates, car loans, and credit card rates. This makes borrowing cheaper for both businesses and consumers, encouraging increased spending and investment.

Decreases savings incentive: Lower interest rates diminish the return on savings accounts and bonds. This disincentivizes saving and motivates individuals and businesses to spend or invest their money elsewhere in pursuit of higher returns, further increasing the money supply in the economy.

Boosts asset prices: As investors seek higher returns, they may shift money from low-yield bonds and savings into assets like stocks and real estate, inflating prices in those markets. This can also create a wealth effect, where individuals feel wealthier and increase their spending.

Weakens the currency: A cut in interest rates can weaken the value of the U.S. dollar relative to other currencies. A weaker dollar makes imports more expensive, which contributes to inflation. Conversely, it makes U.S. exports cheaper for foreign buyers.

Why inflation expectations matter

Changes in interest rates influence not just current inflation but also future expectations of inflation. These expectations can become a self-fulfilling prophecy.

Behavioral changes: If the public and businesses expect higher prices, they will change their behavior. Workers will demand higher wages to keep up with the rising cost of living, and companies may raise prices in anticipation of higher costs and demand. This cycle of rising wages and prices further fuels inflation.

Fed credibility: A key responsibility of the Fed is to maintain price stability, with a long-term inflation target of 2%. If the Fed is perceived as cutting rates too aggressively or at the wrong time, it could lose credibility in its commitment to fighting inflation. This can unmoor inflation expectations, making it more difficult to control prices in the future.

The Phillips Curve: This economic model describes an inverse relationship between unemployment and inflation. The logic is that as employment increases and approaches its "maximum" level, the labor market becomes tighter. This drives up wages and ultimately leads to higher inflation. Cutting rates to ensure maximum employment when the labor market is already strong risks pushing inflation beyond the Fed's target.

The Fed's balancing act

The Fed's actions are complicated by its "dual mandate" to promote both maximum employment and stable prices. This requires balancing the risks of a weakening job market against the risk of reigniting inflation.

In one scenario, the Fed may cut rates in response to a softening labor market, as J.P. Morgan projected in September 2025. However, if inflation remains elevated due to other factors (such as tariffs or supply-chain issues), further rate cuts could lead to a tough choice between supporting jobs and controlling inflation.

In another scenario, if the economy is already near or at full employment, as some recent reports suggest, further rate cuts are more likely to have an inflationary impact than to stimulate real growth.

Conclusion

A further Fed interest rate cut holds the potential to stoke inflation by increasing the money supply and encouraging a spending and borrowing spree. This effect is magnified when the economy is already robust. Critically, these rate cuts can also influence inflation expectations, a powerful driver of actual price increases. The challenge for the Fed lies in balancing its dual mandate of promoting maximum employment and stable prices, especially when these two goals pull policy in different directions. The risk is that misjudging the economy's strength could cause the Fed to lose credibility as a bulwark against inflation, further destabilizing prices.

Welfare programs signal a shift from an empowering growth-based model to a more palliative, subsidy-dependent one.....

 The rate of poverty reduction was significantly faster and arguably more inclusive in the 2004–2014 period than from 2014 to 2025, despite both decades experiencing periods of high inflation and pressures on real wages. While poverty has continued to decline in the more recent decade, the pace has slowed, and the causes for the reduction have shifted from broad-based economic growth to government-led welfare programs.

Comparison of poverty reduction in India      

Pace of Poverty Decline Faster.        

2004–2014 period

The annual rate of rural poverty reduction was 2.32 percentage points between 2004–05 and 2011–12, which was three times the rate of the preceding decade.      

2014–2025 period

After 2015, the pace of poverty reduction slowed significantly compared to the previous decade.

Economic Drivers      

2004–2014 period

Rapid, broad-based growth. The economy grew at around 8% annually, driven by rising savings and investment rates. This rapid growth created high-quality, non-agricultural jobs.   

2014–2025 period

Slower economic growth. The GDP growth rate was lower than in the preceding decade, and macroeconomic policies did not drive investment at the same pace.

Real Wages and Income

2004–2014 period

Real wages increased. Despite periods of high inflation, non-farm job creation led to tightening in the rural labor market and raised real wages. Increases in minimum support prices and the MGNREGA program also supported rural wages.           

2014–2025 period

Real wages faced pressure. Real wage growth was much slower, and some evidence suggests that real wages for a large portion of the workforce barely grew or declined. A high percentage of the workforce continues to work in the informal economy with low wages.

Job Creation and Employment          

2004–2014 period

Strong job creation. About 7.5 million non-agricultural jobs were created annually, allowing millions to move out of agriculture. Urban and youth unemployment were low.      

2014–2025 period

Weak job creation. The pace of non-agricultural job creation declined. There is also evidence of a reversal, with some youth returning to agriculture, and youth unemployment has more than doubled.

Inflation Impact         

2004–2014 period

Inflation impact was offset by wage growth. While inflation was a factor, its impact was largely offset for many by increases in real wages and employment.  

2014–2025 period

Intensified vulnerability. High and persistent inflation, particularly in food prices, severely impacted low- and middle-income families and threatened poverty gains, as growth in real wages did not keep pace.

Key Intervention        

2004–2014 period

Economic growth. The primary driver was robust economic growth creating jobs and increasing income. Government programs like MGNREGA supplemented these effects.      

2014–2025 period

Welfare programs. A significant portion of the recent poverty reduction, particularly in the multidimensional index, is attributed to large-scale government welfare schemes that provide food, housing, and other basic services.

Poverty Measurement

2004–2014 period

The Tendulkar line estimates a sharp decline between 2004–05 and 2011–12, with the number of poor falling by 137 million.   

2014–2025 period

Multidimensional poverty has also declined significantly between 2014 and 2023, with NITI Aayog reporting 24.82 crore people exiting poverty. However, some observers question whether the multidimensional index fully captures the impact of low real wages.

Conclusion

The data suggests that the 2004–2014 period saw a more effective and economically broad-based model of poverty reduction. A combination of rapid, investment-driven economic growth and rising real wages, supported by targeted programs, pulled large numbers of people out of poverty. In contrast, poverty reduction in the 2014–2025 period was driven less by market-led job creation and real income growth and more by state-led welfare transfers. While these welfare programs were critical in preventing a reversal of poverty gains amid higher inflation and stagnant real wages, they signal a shift from an empowering growth-based model to a more palliative, subsidy-dependent one. As a result, the pace of poverty reduction slowed, and a large segment of the population remains vulnerable to economic shocks.

While inflation can reduce the real value of taxes, it also discourages investment.....

 Lower inflation expectations are better because they provide stability for businesses and consumers, leading to more predictable planning and sustained economic growth. While inflation can reduce the real value of taxes, it also discourages investment and can lead to higher interest rates, so managing it is crucial for short-term growth. India can boost short-term growth with lower inflation by ensuring monetary policy aligns with the goal of stable prices, which in turn supports domestic demand and investment.

Why lower inflation expectations are better

Promotes economic stability: Lower and stable inflation expectations allow businesses and consumers to plan for the future with more certainty, as they don't fear a rapid erosion of their purchasing power or a sharp increase in future costs.

Encourages long-term investment: Businesses are more likely to invest in new projects when they can predict future costs and revenues more accurately. High inflation can create uncertainty and make long-term investment less attractive.

Avoids negative effects of high inflation: High inflation can reduce profit margins, complicate financial planning, and lead to a "wage-price spiral" where wages increase to match prices, further fueling inflation.

Anchors inflation: Once inflation expectations are anchored at a low level, it is easier for the central bank to maintain price stability. This is a key goal of the Reserve Bank of India's (RBI) flexible inflation targeting framework, notes the IMF.

How lower inflation boosts short-term growth

Boosts domestic demand: With lower inflation, the real value of disposable income is higher, leading to increased consumer spending, which is a key driver of GDP growth, according to PIB reports.

Facilitates monetary policy: Lower inflation gives the central bank more room to maneuver. The RBI can cut interest rates to stimulate the economy, and these cuts have a more significant impact in a low-inflation environment, as seen in the projected rate cuts in 2025, says this PIB report.

Reduces the impact of high tax costs: The value of certain taxes, such as fixed penalty rates for late tax payments, is eroded by high inflation, making it less of a deterrent, notes the IMF. While this may seem like a short-term benefit, it distorts the tax system and is not a sustainable driver of growth.

Conclusion

Lower inflation expectations are beneficial because they create a stable and predictable economic environment that fosters investment and growth. While inflation can reduce the real value of taxes, this is a negative consequence of high inflation that also hurts businesses and consumers. By keeping inflation low, India can boost short-term growth through increased consumer spending and more effective monetary policy, while simultaneously creating a foundation for long-term economic stability and prosperity.

The primary reason these items remain outside of GST is the resistance from state governments who fear significant revenue loss and the loss of fiscal autonomy.....

 Integrating key recurring costs like fuel, electricity, real estate, and alcohol into India's Goods and Services Tax (GST) framework is a complex and contentious issue. While including them could increase household savings and investment by reducing the cascading tax effect and potentially lowering costs, significant challenges, especially for state revenues, have kept these items outside the GST ambit. Bringing these high-value items under GST could lower the overall tax burden for consumers and businesses, potentially leading to increased disposable income for savings and investment. The current system taxes these items multiple times. Fuel and alcohol, for instance, have central excise duties and state-level VAT, which are levied on top of each other. Integrating them into GST would replace these multiple taxes with a single levy, reducing the final price for consumers and the cost for businesses. If applied at a lower, uniform rate, consumers would see immediate savings. For example, some estimates suggest that taxing petrol and diesel at the highest GST slab could still significantly reduce their prices. The reduction in recurring expenses like fuel and electricity, which affect both households and businesses, would free up more money for savings and investment. Lower logistics and manufacturing costs for businesses, achieved through the ability to claim input tax credit (ITC) on fuel and electricity, could spur industrial growth and make India more competitive.

The items mentioned are currently taxed outside of the GST regime. Petroleum products like petrol and diesel are a major source of revenue for both the central and state governments. The center levies an excise duty, while states impose their own Value Added Tax (VAT), leading to widely varying prices across the country. While the electricity supplied by utility companies is exempt from GST, related services like installation and maintenance attract GST. Taxes on electricity are levied by state governments. The sale of completed properties with an occupancy certificate falls outside the scope of GST. However, GST is applicable to the sale of under-construction properties. Alcoholic liquor for human consumption is constitutionally excluded from GST. State governments retain full control over its taxation through excise duties and VAT, which is a major source of their revenue. While many essential food items like fresh produce and unprocessed grains are exempt from GST, processed and packaged food items are taxed at various GST rates (e.g., 5%, 18%).

The primary reason these items remain outside of GST is the resistance from state governments who fear significant revenue loss and the loss of fiscal autonomy. Fuel and alcohol are major sources of tax revenue for state governments. Bringing them under a standardized GST would mean sharing this revenue with the central government, which states are reluctant to do. High taxes on alcohol and fuel allow both the central and state governments to manage revenues and influence consumption patterns, a power they are unwilling to cede. In the case of fuel, international crude price volatility means that central and state governments currently adjust duties separately to manage prices. Integrating fuel into a single GST rate could complicate fiscal policy. The exclusion of fuel and alcohol from GST means that businesses cannot claim input tax credit on them. This breaks the seamless credit chain, a core objective of the GST framework.

Integrating these sectors into GST could be a double-edged sword for household savings and investment, but the prevailing view suggests a net positive if managed correctly. If managed effectively, the integration of these sectors could lead to lower prices, increased disposable income, and higher household savings and investment. The potential increase in costs for some items or compliance burdens for businesses could have a negative effect, though reforms like those introduced in September 2025 aimed to address some of these issues by simplifying tax slabs. Ultimately, while the potential for increased savings and investment exists by bringing these high-cost items into GST, the political and economic challenges related to state revenues and fiscal policy remain a major hurdle.

Risk management strategies like hedging are indispensable for financial stability.....

 Hedging is an important part of a company's feasibility report in India, especially for businesses with international operations, exposure to commodity price fluctuations, or significant debt. Since a feasibility study assesses all potential risks and the financial viability of a new project, it must include an analysis of strategies to mitigate financial risks like hedging.

How hedging is included in a feasibility report

Hedging is not a standalone section but is incorporated into the overall risk assessment and financial analysis. Key areas in the report where hedging is addressed include:

1. Financial feasibility

This section evaluates if the project is economically justifiable and includes financial projections for costs, revenues, and profitability. For businesses with risk exposure, such as to fluctuating currency or commodity prices, an effective hedging strategy is critical for ensuring that these projections are stable and predictable.

For example, an airline company's feasibility report for a new route would factor in the cost of fuel. Its financial projections would be based on a plan to use hedging instruments like futures contracts to lock in fuel prices, thus minimizing the financial risk from potential price hikes.

2. Risk assessment

This is a core component of any feasibility study that identifies potential risks and outlines mitigation strategies. For companies exposed to market risks, a hedge is a primary way to control this exposure.

Foreign exchange risk: For an Indian company that exports or imports goods, or has international financial transactions, the report must analyze the risk from fluctuating currency exchange rates. It should detail the hedging strategy, such as using forward or futures contracts, to protect cash flows and profitability.

Commodity risk: If a project relies on commodities like oil, a feasibility report would assess the risk of price changes. The plan to hedge against this risk using financial instruments is an essential part of the risk assessment.

3. Managerial and organizational feasibility

This section examines if the management has the capacity and structure to support the project. This can include the company's ability to develop and execute complex hedging strategies effectively.

A feasibility report provides a comprehensive and objective evaluation of a proposed project's viability, covering market, technical, and financial aspects. Given the significant market volatility in India and globally, risk management strategies like hedging are indispensable for financial stability. Including a well-defined hedging plan in a feasibility report provides a clear picture of how the company intends to mitigate risks, protect its projected cash flows, and ensure the project's long-term sustainability. For businesses with exposure to foreign currency, interest rates, or commodity prices, the inclusion of a hedging strategy transforms the report from a simple viability check into a robust and realistic business plan that inspires confidence in investors and lenders.

Hedging creates certainty in repayment obligations....

 Indian businesses can benefit from lower external borrowing costs and Masala bonds primarily by accessing a new pool of capital at potentially lower rates. When combined with strategic hedging using currency derivatives, they can minimize foreign exchange risk, increase financial stability, and free up capital for core business activities.

Benefits from lower borrowing costs and Masala bonds

Lower borrowing costs through external sources like External Commercial Borrowings (ECBs) and Masala bonds directly boost an Indian company's financial health.

Access to competitive rates: International interest rates are often lower than domestic rates, allowing companies to reduce their overall cost of capital. This makes new projects more profitable and improves a company's bottom line.

Reduced currency risk with Masala bonds: Unlike traditional ECBs denominated in foreign currencies, Masala bonds are rupee-denominated. This shifts the currency exchange risk from the Indian issuer to the foreign investor, protecting the Indian company from losses if the rupee depreciates.

Diversification of funding sources: Tapping international markets allows companies to diversify their funding beyond domestic banks. This is particularly valuable during periods of tight domestic liquidity.

Access to a broader investor base: Issuing Masala bonds on international exchanges, such as those in London or Singapore, gives Indian companies access to a wider pool of foreign investors. This can increase demand for their debt and potentially lower borrowing costs.

Increased financial flexibility: Longer maturity periods, often available with ECBs and Masala bonds, give companies more flexibility for long-term strategic planning and capital-intensive projects.

Benefits of hedging external borrowing with currency derivatives

For companies that choose foreign currency ECBs, hedging with derivatives is a crucial strategy for mitigating the currency risk and securing the low-cost borrowing benefits.

Derivative strategy    

How it benefits Indian businesses

Forward contracts      

Allows a company to lock in an exchange rate for a future date, creating certainty for its future payments. This is suitable for managing transaction-specific risks like an upcoming loan repayment.

Currency swaps          

Enables a company to exchange a foreign currency liability for a domestic one for a specified period. This offers a longer-term hedge against exchange rate volatility by effectively converting a foreign currency loan into a rupee-denominated one.

Currency options       

Gives the company the right, but not the obligation, to buy or sell a foreign currency at a predetermined price. This offers protection against an unfavorable movement in the exchange rate while retaining the ability to benefit from a favorable movement.

Synergistic benefits and strategic outcomes

By combining the lower costs of external borrowing with astute hedging strategies, Indian businesses can unlock several strategic advantages.

Enhanced balance sheet stability: By mitigating the risk of large, unpredictable liabilities from currency fluctuations, companies can protect their balance sheets and credit ratings. This financial stability signals strength to investors and creditors.

Hedging creates certainty in repayment obligations. With more predictable cash flows, a company can better plan for future investments, expansion, and operations. The combination of a lower cost of capital and stable financial planning enables companies to price their products and services more competitively, both domestically and internationally. Diversifying funding and hedging against currency risk reduces a company's sensitivity to domestic interest rate cycles and market conditions. A proactive approach to risk management enhances an Indian company's appeal to foreign investors. It demonstrates sophisticated financial management, which can further open doors to more international capital.

For education to serve as a catalyst for equity, it must address the systemic barriers that perpetuate inequality.....

 To foster an equitable and inclusive society, providing quality education for all, especially in STEM fields, is vital for both individual empowerment and national economic growth. By equipping a diverse populace with skills relevant to burgeoning industries like IT, manufacturing, and healthcare, a nation can reduce inequality and become more globally competitive. A fully subsidized, knowledge-focused education policy in India could significantly boost development and economic growth by creating a highly skilled workforce, fostering innovation and entrepreneurship, and increasing overall national productivity, leading to higher real incomes for its citizens. This investment in human capital would strengthen India's economic foundation, attract more investment, promote diverse industrial growth, and ultimately contribute to higher GDP and reduced poverty.

Benefits for India's Economy and Development

A well-educated population is more productive, creative, and capable of performing complex tasks, which is essential for a thriving economy. Education fosters an environment where new ideas and businesses can flourish, driving technological advancements and new industries. An educated and skilled workforce commands better employment opportunities and higher wages, leading to increased real incomes for individuals and a reduction in poverty rates. A more educated workforce contributes directly to higher national productivity and GDP growth rates. A skilled talent pool makes a country more attractive for domestic and foreign investment, further fueling economic growth. Ensuring access to quality education for all, regardless of socioeconomic background, promotes greater equity and a more inclusive society. Investing in education, especially in STEM fields, equips the nation to develop and compete in sectors like IT, manufacturing, and healthcare.

Investing in STEM education

As industries advance with technologies like AI, automation, and big data, a STEM-literate workforce is essential. Investments in STEM education can address skill gaps and ensure the workforce is equipped for the jobs of the future. STEM education fosters critical thinking and problem-solving skills, which are crucial for innovation. This can fuel scientific discovery, technology breakthroughs, and entrepreneurship, leading to new industries and job creation. Nations that prioritize STEM education and R&D are more likely to lead in innovation and remain competitive in the global market. Fostering partnerships between educational institutions and industries helps align the curriculum with market needs. Initiatives like internships and mentorship programs provide students with real-world experience.

Focus on IT, manufacturing, and healthcare

Targeted educational investments can be tailored to the specific needs of high-growth sectors. The IT sector relies heavily on a skilled workforce in areas like artificial intelligence, data science, and cloud computing. Education can integrate digital literacy and coding from an early age and offer specialized programs to prepare students for these roles. As the manufacturing sector evolves with Industry 4.0, education must shift to emphasize emerging technologies like robotics, IoT, and data analytics. Vocational training programs can provide the hands-on, practical skills needed for modern, technology-centric manufacturing roles. The healthcare industry is being transformed by digital technologies and personalized care. Specialized programs, like IIT Delhi's Executive Programme in Healthcare for Industry 5.0, are crucial for training professionals in health-tech, big data analytics, and AI applications.

For education to serve as a catalyst for equity, it must address the systemic barriers that perpetuate inequality. Education must be accessible to all, irrespective of socioeconomic background, gender, or location. For instance, a child in a low-income family is far less likely to have access to quality early childhood education or tutoring services. Schools must foster an atmosphere of acceptance and respect for all students. Inclusive education practices, such as differentiated instruction and culturally responsive teaching, benefit both marginalized students and society as a whole. Because students start from different baselines, equity requires different levels of support to achieve the same outcome. This includes dedicated resources for underserved schools, targeted programs for marginalized groups, and support for learners with special needs. Education is a powerful tool for social mobility that helps individuals from disadvantaged backgrounds secure better employment and improve their livelihoods. This economic empowerment helps break the intergenerational cycle of poverty. Quality education can reduce societal inequalities linked to income, caste, and gender. By exposing students to diverse perspectives and backgrounds, it promotes tolerance and strengthens social bonds. Investing in education, particularly in STEM fields, is a strategic priority for developing new industries and driving economic growth. A larger number of educated and employable individuals leads to increased employment and higher wages, resulting in greater overall income tax collection for the government. This increased tax revenue can then be reinvested into further strengthening the education system, infrastructure, and other crucial sectors, creating a virtuous cycle of growth and development.

By adopting a dovish hold, the RBI sought to manage global risks while supporting the domestic economy.....

 Low inflation and the anticipation of lower interest rates help India offset the drag from tariffs by reducing production costs and boosting consumer spending. The government's recent GST rate cuts on key items and potential further tax reductions, alongside stable prices, reduce business costs and increase purchasing power, supporting domestic demand. Additionally, the Reserve Bank of India (RBI) has policy space to cut interest rates if tariffs significantly hinder growth, making credit cheaper for businesses and individuals, thereby stimulating investment and consumption to counterbalance reduced exports. The Reserve Bank of India's (RBI) decision to keep interest rates steady while signaling a supportive, or "dovish," stance toward future growth. This is done to counteract potential negative impacts on the economy, specifically from new tariffs.

How Low Inflation Helps

Lower inflation means input costs for businesses, such as raw materials and energy, are more stable or decreasing, improving profit margins and potentially leading to lower consumer prices. With lower inflation, the purchasing power of consumers is maintained or enhanced, encouraging them to spend on goods and services. Low inflation provides the Reserve Bank of India (RBI) with the "policy space" to reduce interest rates to support growth without immediately risking overheating the economy.

How Low Interest Rates Help

Lower interest rates make borrowing cheaper for businesses, encouraging them to invest in expansion, new technologies, and capital projects, which drives economic growth. Lower rates reduce the cost of loans for homes, cars, and other durables, making them more affordable and encouraging greater consumer spending. Lower rates improve the flow of credit and liquidity in the economy, benefiting sectors like MSMEs and manufacturing.

How Policy Expectations Help

The expectation of further interest rate cuts, or a "dovish hold" by the RBI, signals continued monetary policy support for growth in the face of tariff-related headwinds. A stable and supportive policy framework, with lower interest rates expected, allows businesses and consumers to plan with greater certainty, boosting confidence and investment.

How Fiscal Measures Complement Monetary Policy

The government's recent reductions in Goods and Services Tax (GST) rates on essential goods and services directly boost consumer spending and reduce business costs, creating a strong domestic counter-force to tariff impacts. The combined effect of lower prices from inflation and reduced taxes stimulates domestic consumption, which can help offset the negative impact of reduced exports due to tariffs.

Dovish vs. dovish hold

A central bank signals that it is prioritizing economic growth and employment over controlling inflation. This is typically done by lowering interest rates, which makes borrowing cheaper and encourages spending. This occurs when a central bank like the RBI holds the main policy rate (the repo rate) unchanged but adopts communication that signals its bias toward future easing. It is a "wait-and-watch" approach that allows the central bank to assess evolving economic conditions before committing to a rate cut.

Key elements of the RBI's recent dovish hold

The RBI's actions and commentary on October 1, 2025, illustrate this strategy. The RBI's Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.5% for the second consecutive meeting. The RBI revised its GDP growth forecast for FY26 upwards to 6.8% (from 6.5%) while simultaneously lowering its inflation forecast to 2.6% (from 3.1%). This created more space for potential rate cuts. The central bank acknowledged that higher US tariffs on Indian exports could weigh on growth in the coming quarters. By highlighting lower inflation and external headwinds, the RBI indicated it could cut rates in the future if growth staggers. This is the "dovish" element of the "hold."

By adopting a dovish hold, the RBI sought to manage global risks while supporting the domestic economy. New US tariffs on Indian goods threaten to hurt exports and overall economic growth. By maintaining an easy monetary stance, the RBI provides continued support for domestic consumption and investment to offset this external pressure. Lower interest rates reduce borrowing costs for both individuals and businesses. This encourages higher consumption and investment, stimulating economic activity. In the real estate sector, for example, a stable or falling repo rate supports lower home loan rates, boosting buyer confidence. The RBI's primary mandate is to keep inflation within its target range of 4% (with a +/- 2% band). By revising its inflation forecast down, the RBI's dovish hold signals confidence that it can support growth without risking an uncontrolled rise in prices. The dovish tone and potential for future rate cuts tend to boost market sentiment. The stock market, for instance, often reacts positively to news of a dovish monetary policy.