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Informist, Wednesday, Aug. 20, 2025

 

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--MPC Malhotra: Growth at 6.5% resilient but lower than what we can achieve 
--MPC Malhotra: Supply-side factors, supportive policy to boost growth FY26 
--MPC Malhotra: Urban demand is likely to pick up during the festive season 
--MPC Malhotra: Uncertainty in external demand, tariffs major drag on growth 
--MPC Malhotra: Inflation to fall substantially near term on food prices 
--MPC Malhotra: Monetary policy must remain watchful on external uncertainty 
--MPC Kumar: Continuing challenges to sustainability of econ growth 
--MPC Kumar: Credit offtake not happened as expected despite lower rates 
--MPC Kumar: Diversification of markets for goods to be important going ahead 
--MPC Kumar: Negotiations of India-EU FTA need to be expedited 
--MPC Kumar: Pvt invest sentiment adversely affected by trade uncertainty 
--MPC Kumar: 25% US tariffs causing lot of anxiety about economic outlook 
--MPC Kumar: Lending rates to fall more in coming mos as liquidity in surplus 
--MPC Kumar: 25% US tariff may hit India GDP growth by 20-30 bps 
--MPC Kumar: Threat of job losses more serious post 25% US tariff 
--MPC Kumar: Wish to wait, watch as transmission of existing steps happens 
--MPC Kumar: Diversification of markets for goods will be important 
--MPC Kumar: Wish to wait and watch to see how trade uncertainties play out 
--MPC Kumar: Can hold stance at neutral amid challenging econ environment 
--MPC Bhattacharya: Need to step back, assess impact of rate, policy actions 
--MPC Bhattacharya: Global supply chain dislocations uncertainty stays high 
--MPC Bhattacharya: Tariffs to impact India growth adversely FY26, beyond 
--MPC Bhattacharya: Tough to give modicum of forward guidance on uncertainty 
--MPC Singh:Data signals lower food price momentum to continue in coming mos 
--MPC Singh: Inflation outlook for FY26 very benign 
--MPC Singh: Avg core inflation likely to be above target range coming qtrs 
--MPC Singh: Some stress signs associated with achieving 6.5% growth in FY26 
--MPC Singh: Growth distress visible in US mkt-reliant MSMEs in some sectors 
--MPC Singh: In normal situation, inflation prospects make case for rate cut 
--MPC Singh:Unusually high uncertainty on inflation, growth calls for caution 
--MPC Singh: Risk of imported inflation on uncertainty over commodity prices 
--MPC Singh: Proposed CPI base yr revision a downside risk for inflation 
--MPC Singh: US Fed rate moves ahead to impact feasibility of RBI rate cut 
--MPC Gupta: Evolving growth-inflation dynamics have weighed on my vote 
--MPC Gupta: Fincl mkt volatility still elevated; down from May-Jun peak 
--MPC Gupta: Geopolitical uncertainties still high; down from May-Jun peak 
--MPC Gupta: Trade uncertainties have aggravated for India 
--MPC Gupta: Indian economy remains resilient overall despite challenges 
--MPC Gupta: Favourable monsoon, low inflation supporting econ activity 
--MPC Gupta: Govt infra spend, monetary easing supporting econ activity 
--MPC Gupta: Moderation in Jun CPI not general, primarily food deflation 
--MPC Gupta: CPI likely to firm up above 4% in Q4; approach 5% Apr-Jun 2026 
--MPC Gupta: CPI may approach 5% Q1 FY27 even with moderate price momentum 
--MPC Gupta: Transmission of cumulative rate cut has been impressively rapid 
--MPC Gupta: Rate cut transmission still unfolding, to pick up in coming mos 
--MPC Gupta: Rate cut transmission to be helped by CRR cuts effective Sept 
--MPC Gupta: Cost, availability of funds not a material constraint to growth 
--MPC Gupta: New invest, consumption decisions hinge on structural factors 
--MPC Gupta: Do not see scope or rationale for further policy rate cut 
--MPC Gupta: Propose neutral stance so future actions can be data dependant 
--MPC Ranjan: Aug meet toughest in terms of deciding future policy course 
--MPC Ranjan: Arguments were equally strong whether or not to cut rates Aug 
--MPC Ranjan: Good case to be made that there is more room for policy easing 
--MPC Ranjan:Arguments for status quo on rates, stance seemed to be stronger 
--MPC Ranjan:Prudent to wait and watch to see transmission before more easing 
--MPC Ranjan:Growth tracking earlier projections but still below aspirations 
--MPC Ranjan:CPI risks make strong case to wait before further policy easing 
--MPC Ranjan: Data-dependent approach leaves space to act on growth risks

 

MUMBAI – The uncertainty around the implications of US tariffs on Indian goods exports and the unfolding growth-inflation dynamics led to the Monetary Policy Committee's decision to keep the repo rate and the stance unchanged at its meeting in August, the minutes released Wednesday showed. The Reserve Bank of India's rate-setting panel, which met Aug. 4-6, unanimously held the repo rate at 5.50%, having lowered it by 100 basis points between February and June. It also retained the "neutral" stance.

 

"This was one of the most difficult meetings in terms of deciding on the future course of monetary policy," RBI Executive Director Rajiv Ranjan said in the minutes. "...I felt that the arguments were equally strong and delicately poised on both sides in this August meeting--to cut the policy repo rate by 25 bps or not to cut."

 

Ranjan felt there was room for further policy easing to support growth, especially in an uncertain global environment, but RBI Deputy Governor Poonam Gupta said she sees no scope for a further cut in the policy rate. "Taking into account the growth-inflation outlook, past actions, the state of the domestic economy, and the global dynamics, I do not see the scope or rationale for a further policy rate cut at this point," she said. Gupta also backed the "neutral" stance so that future policy actions could be data-dependent.

 

The evolving growth-inflation dynamics weighed on her vote, Gupta said. Notwithstanding trade and geopolitical uncertainties and the volatility in financial markets, the Indian economy remains resilient overall, she said. "A favourable monsoon, low inflation, government infrastructure spending, and congenial financial conditions facilitated by frontloaded policy easing remain supportive of domestic economic activity," she said. However, some trade uncertainties have queered the pitch for the country, she added.

 

Gupta said moderation in inflation is primarily driven by food inflation and the headline number may rise above 4% again, come Jan-Mar. Inflation may move closer to 5% in the first quarter of the next financial year, she said.

 

Gupta further said the cost or availability of funds is not a material contraint for growth at this point, but the "...heightened global uncertainties and structural factors seem to be more constraining for new investment and consumption decisions".

 

Gupta also said the August policy needs to be seen in the context of previous actions as past rate cuts are still being transmitted through the economy. "Transmission of the cumulative rate cut has been impressively rapid, but it is still unfolding and is likely to pick up in the coming months, facilitated by the CRR (cash reserve ratio) cuts coming into effect from September," she said.

 

In June, the RBI had announced a cut of 100 bps in the cash reserve ratio to 3% of banks' net demand and time liabilites. The cut, to be implemented in four tranches of 25 bps each starting September, is expected to infuse liquidity to the tune of INR 2.50 trillion into the banking system, Governor Sanjay Malhotra had said.

 

Ranjan argued that a case could be made for further policy easing. "With projections for 2025-26 marked down significantly, inflation well below the 4% target in the near term, and greater traction of cyclical policy support for economic activity as the festive season approaches, there is a good case to be made that the room has opened up again for policy to ease further in support of growth, especially in an uncertain global environment," he said.

 

However, he agreed that the argument to stand pat on interest rates and stance seems stronger as the effects of the 100 bps of cuts delivered so far were still working their way through the system. "...it is prudent at the current juncture to adopt a wait-and-watch approach to see the extent of transmission before delivering further policy stimulus," Ranjan said.

 

Like Gupta, Ranjan, too, expects headline inflation to overshoot the RBI's target of 4% by Jan-Mar and rise further to 4.9% in Apr-Jun. "Given these risks, there is a strong case for monetary policy to wait for a more definitive signal about sustained moderation in inflation before venturing into further policy easing," he said.

 

Ranjan also concurred that a data-dependent policy stance leaves the rate-setting panel with the space to act, should downside risks to growth arise and inflation remain on the projected trajectory.
 

On the estimate of 6.5% growth for the financial year ending March, Governor Malhotra said that while the projection is resilient considering the current economic environment, "... this is certainly lower than what we can achieve". Growth in the financial year 2025-26 (Apr-Mar) will be supported by favourable supply-side factors as well as a supportive policy environment, he said.

 

Malhotra said urban demand is likely to pick up, especially during the festival season, which will boost economic growth. However, "...uncertainty in external demand, driven by tariff and geopolitical uncertainty, remains the major drag on growth as it also hinders private investment intentions, which is yet to show visible signs of improvement," the governor added.

Inflation is expected to fall below the lower limit of the rate-setting panel's tolerance band of 2-6% in the near term, supported by a fall in food prices, Malhotra said. He, however, cautioned that it is expected to inch up from the December quarter. At the August meeting, the RBI slashed its headline inflation forecast for the September quarter by 130 bps to 2.1% and lowered the projection for FY26 by 60 bps to 3.1%. Malhotra also projected inflation to average 4.9% in the June quarter of FY27. The governor said monetary policy needs to remain watchful, given the uncertainty on the external front.

 

Saugata Bhattacharya said the Monetary Policy Committee needs to step back and assess the impact of the rate decisions and other policy actions that have already been delivered. He said that along with the inflation-growth dynamics, the rate-setting panel needs to focus on loan and deposit rates of banks. "...one of the principal objectives of monetary policy easing is to lower borrowing costs to support investment intent and decisions," he said.

 

Bhattacharya said that even as the scope and scale of US tariffs become clearer, the uncertainty about global supply-chain dislocations remains high. The outlook on India-US trade has become fraught, he said. "If these tariffs persist, there is likely to be an adverse impact on India growth in FY26, and probably beyond," he said. Given this level of extant and evolving uncertainty, it is difficult to provide even a modicum of forward guidance, he added.

 

Ram Singh cited "multi-dimensional and high-order uncertainty" while voting for the status quo on the repo rate and stance. However, average core inflation is likely to remain above the target range in the upcoming quarters, he said.

 

With fixed investment primarily supported by government capital expenditure and private expenditure remaining below 6.5%, there are some signs of stress associated with achieving a growth rate of 6.5%, Singh said. He also spoke of how the uncertainty around tariffs has put Indian exporters at a disadvantage with signs of distress in growth and employment for micro, small, and medium enterprises visible in sectors reliant upon the US market, such as diamonds and jewellery, textiles and apparel, and fisheries.

 

"The headwinds emanating from a fluid geopolitical scenario, heightened global uncertainties, and volatility in international financial markets pose serious risks to domestic growth outlook," Singh said. The unusually high degree of uncertainty on both the inflation and growth fronts calls for greater caution, he said.

 

"Under normal circumstances, there would be a case for a growth-supportive interest rate cut given benign inflation prospects," he said. However, there is a risk of imported inflation due to uncertainty about the prices of some commodities and the implications of volatility in global financial markets, Singh added. The expected revision in the inflation series based on the revised CPI index, which has a lower weightage for food, adds to the downside of inflation risks, Singh said. He further said lower food price momentum is expected to continue for some time, making the inflation outlook for FY26 "very benign".

 

On the prospects of further rate cuts by the RBI, Singh said the interest rate decisions of the US Federal Reserve and other central banks will have a bearing on the feasibility and size of a further rate cut by the RBI.

 

Nagesh Kumar was also of the view that the rate-setting panel should "wait and watch" as its earlier actions are transmitted through the economy. It should also see how the trade uncertainties play out before considering policy actions at the October meeting. He said the Monetary Policy Committee should continue with the "neutral" stance to keep its options open in this challenging and complex economic environment.

 

Like his peers, Kumar was of the view that challenges to sustainable economic growth persist in the shape of trade policy uncertainties and subdued private investment. "The economic growth outlook remains challenging... credit offtake has also not happened in the expected manner, despite lower interest rates," he said. 

 

Kumar said the private investment sentiment is adversely affected by the trade policy uncertainties. "While the signing of the UK-India FTA (Free Trade Agreement) is an important positive development, the US announcement of 25% tariffs on India is causing a lot of anxiety about the economic outlook," he said. He added that there is a need to expedite the trade pact between India and the European Union as diversification of markets for goods is going to be important.

 

The US tariffs are likely to have a negative impact of 20-30 bps on India's GDP, Kumar said. "...US is a major market for India's exports of labour-intensive goods such as textiles and garments, leather goods, gems and jewellery, shrimp among other food products," he pointed out. "The threat of job losses is more serious."

 

Kumar also said that seeing the lag in transmission of earlier policy decisions, banks' lending rates could soften further in the months to follow, especially as liquidity in the banking system continues to be in surplus.  End

 

Reported by Kabir Sharma

Edited by Rajeev Pai

 

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