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Informist, Friday, Jun. 20, 2025

 

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee lowered the repo rate by a bigger-than-expected 50 basis points earlier this month as the committee saw a need to support economic growth in the face of global uncertainties, minutes of its meeting released Friday showed. The committee found comfort in declining inflation and was able to "frontload" monetary policy easing.

 

"...while growth remains steady, it is lower than our aspirations. The growth forecast remains the same as the outturn of last year, which was 6.5%," RBI Governor Sanjay Malhotra said. "On the whole, I believe that, given the current macroeconomic conditions and the outlook, monetary policy needs to support growth, while remaining consistent with the objective of price stability."

 

On Jun. 6, the RBI's rate-setting panel unexpectedly cut the repo rate by 50 bps to 5.50% and changed the stance to "neutral" from "accommodative". The minutes of meetings of the Monetary Policy Committee are released with a lag of 14 days.

 

Malhotra said the increased global uncertainty could result in businesses putting investment decisions on hold, which underscores the need for policies supportive of growth. Nagesh Kumar, an external member of the rate-setting panel, said the case for a 50 bps cut in repo rate had become stronger in view of the difficult external circumstances, requiring support for economic growth. The favourable inflationary outlook had provided headroom.

 

The global landscape has turned highly uncertain with US President Donald Trump's unpredictable tariff policies and the worsening conflict in West Asia. "A heavier-than-expected cut in policy rate (along with the possible fiscal policy support) would send a clear message that India is serious about supporting economic growth momentum and would spare no effort in terms of policy interventions," Kumar said. 

 

Deputy Governor Poonam Gupta, who made her Monetary Policy Committee debut at the June meeting, said frontloading the rate cut helps to foster policy certainty and faster transmission than a staggered rate cut. It also helps to counter more effectively the challenges emanating from the state of the global economy. However, External Member Saugata Bhattacharya, who was the only one to vote for a 25 bps rate cut, said that amid the prevailing uncertainties, measured and cautious progress in policy easing would be more appropriate.

 

RBI Executive Director Rajeev Ranjan said a 50 bps rate cut would help to hasten transmission by providing decisive signals and confidence to stakeholders. Kumar also highlighted that the transmission of monetary policy easing had been slow or moderate and credit growth had also been moderate, owing to inefficiencies in the system.

 

Committee members gave several reasons for a shift in policy stance to "neutral" from "accommodative", with the governor saying a neutral stance would give monetary policy the flexibility necessary to cut, pause, or raise the policy rate in response to the evolving domestic and global economic conditions. External Member Ram Singh supported the change in policy stance in view of "unquantifiable global uncertainties".

 

Ranjan further said keeping the policy stance unchanged when going for a cut of 50 bps would not be suitable and could mislead the financial markets about the scale and scope of further monetary policy easing, re-pricing of which could create unnecessary volatility. "At the same time, it is to be noted that the shift in stance to neutral should not be confused to be a sign that the direction of monetary policy has changed," he said. "The neutral stance provides flexibility and is meant to signal that there is no strong bias for any rate action absent any meaningful change in the macroeconomic outlook."

 

The Monetary Policy Committee members took great comfort from the benign inflation outlook. Malhotra expects food inflation to remain moderate during the year on the prospect of an above-normal southwest monsoon. He also expects core inflation to be largely contained.

 

"...headline inflation is expected to align with the target further durably, and in fact undershoot at the margin, giving space for monetary policy to support growth," Gupta said. India's headline CPI inflation fell to an over six-year low of 2.82% in May. The RBI earlier this month slashed its headline inflation forecast for the financial year 2025-26 (Apr-Mar) by 30 bps to 3.7%.  End

 

Reported by Pratiksha

Edited by Rajeev Pai

 

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