RBI MPC meeting: The Reserve Bank of India (RBI) governor Sanjay Malhotra announced that the Monetary Policy Committee (MPC) has unanimously decided to cut the key policy repo rate by 25 basis points to 6%. He also said that the GDP growth outlook for FY 2025-26 has been cut slightly to 6.5% from 6.7% earlier. The outlook for CPI inflation appears to be benign at 4% for the current financial year.
Moreover, the MPC also decided to change the stance from neutral to accommodative. RBI governor Sanjay Malhotra explained that in the context of India, an ‘accommodative’ policy means that the MPC will in future monetary policy meetings either maintain status quo or cut repo rate further.
The Donald Trump administration has announced a 26% reciprocal tariff on Indian goods, and while other major economies have been hit with higher rates, a trade war may mean a bigger global economic slowdown and even recession. It is against this backdrop that the RBI’s monetary policy assumes significance.
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So why did the RBi governor-led MPC unanimously decide to cut the repo rate? The rationale for the policy lies in risks to India’s GDP growth.
- The MPC noted that inflation is currently below the target, supported by a sharp fall in food inflation. Moreover, there is a decisive improvement in the inflation outlook.
- On the other hand, impeded by a challenging global environment, growth is still on a recovery path after an underwhelming performance in the first half of 2024-25.
“While the risks are evenly balanced around the baseline projections of growth, uncertainties remain high in the wake of the recent spurt in global volatility. In such challenging global economic conditions, the benign inflation and moderate growth outlook demands that the MPC continues to support growth,” said RBI in its statement.
The RBI governor cautioned that the global economic outlook is fast changing. The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation, he said.
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Merchandise exports would be weighed down by the evolving global economic landscape which appears to be uncertain at the current juncture, while services exports are expected to sustain the resilience, he added.
“The domestic growth-inflation trajectory demands monetary policy to be growth supportive, while being watchful on the inflation front. We are aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance. As before, we shall remain agile and decisive in our response and put in place policies that are clear, consistent, credible and in the best interest of the economy,” he concluded.
