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Informist, Wednesday, Oct. 1, 2025

 

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--RBI Malhotra: Inflation reduced considerably since last meeting
--RBI Malhotra: Monetary Policy transmission been good, still happening
--RBI Malhotra: No rate cut because policy transmission is still ongoing
--RBI Malhotra: Inflation has fallen 1 percentage points from earlier forecast
--RBI Malhotra: Changing growth, inflation dynamics led to tweak in language
--RBI Malhotra: Govt, RBI will make efforts to counter external headwinds
--RBI Malhotra: There was a discussion to change policy stance to accommodative
--RBI Malhotra: Two MPC members wanted to change policy stance to accommodative
--RBI Malhotra: Tariffs were factored in for all econ forecasts
--RBI Malhotra: Inflation forecast cut includes GST changes, tariff impact
--RBI Malhotra: GST changes will not fully offset impact of US tariffs
--RBI Malhotra: Financial, price stability is foremost for us
--RBI Malhotra: Govt has put in place several steps for supply chain mgmt
--RBI Malhotra: Will do whatever required to deal with weather-related risks
--RBI Malhotra: Seeing good demand in lot of sectors for capex
--RBI Malhotra: Primary tool for policy transmission is repo rate
--RBI Malhotra: Confident policy trasnmission will continue going forward
--RBI Malhotra: Got various suggestions on inflation targetting framework
--RBI Gupta: Inflation numbers have been suprisingly really really benign
--RBI Gupta: Fast evolving, fluid situation so we have to watch
--RBI Gupta: There is room for a rate cut but have to consider other factors
--RBI Gupta: Number of things have to be considered before deciding next action

 

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee sees "some room has opened" up for further rate cuts to support domestic growth--which is expected to see a downward pressure in Oct-Mar from US' tariffs--but will consider a host of other factors in taking the decision, Deputy Governor Poonam Gupta said Wednesday. "Some room has opened...but it has to be contextualised with everything else that's happening both domestically and globally," Gupta said at the post policy press conference.

 

The RBI's Monetary Policy Committee at its latest meeting decided to leave the policy repo rate unchanged at 5.50% and maintained the 'neutral' stance adopted in June. "..it's a fast evolving very, very fluid situation," Gupta said while answering a question by Informist, adding that GDP growth was only one of the number of factors that will be taken into account to take a call on rate cut. 

 

While the macroeconomic conditions and the outlook opened up policy space for further supporting the growth, the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out, hence, the MPC decided to maintain the status quo, central bank Governor Sanjay Malhotra said. The committee has lowered the repo rate by 100 basis points so far this year. It started lowering interest rates in February with a 25-bps cut, followed by another 25-bps cut in April, and a larger-than-expected 50-bps reduction in June.

 

According to Malhotra, the transmission of the 100-basis-point interest rate cuts this year has been "good" so far and is still happening. We are confident that policy transmission will continue going forward, he added. 

 

Although the policy stance was retained at 'neutral', Malhotra said that there was a discussion to change the stance to 'accomodative' to better support growth against the backdrop of exogenous pressures. Two members--Nagesh Kumar and Ram Singh--were of the view that the stance should be changed from 'neutral' to 'accommodative'. 

 

The central bank Wednesday raised the GDP growth forecast for the current fiscal by 30 bps to 6.8% but that was primarily because of the robust Apr-Jun GDP print and the better-than-projected expectation of Jul-Sept print. As per data from the statistics ministry, India's GDP grew 7.8% in Apr-Jun, which was a surprise on the upside and is expected to be 7% in Jul-Sept, 30 bps higher than earlier projected.

 

The RBI lowered the GDP forecast for Oct-Dec as well as Jan-Mar due to trade-related headwinds weighing on economic growth in the last two quarters of the fiscal year, Malhotra said. GDP print in Oct-Dec is now expected to be 6.2%, 10 bps lower than earlier projected and 6.8%% in Jan-Mar, 30 bps lower than previous estimate by the RBI.

 

The Indian economy, particularly exports and capital formation, faces risks from the tariffs by the US. Citing displeasure over the high trade gap, the US had imposed a 25% reciprocal tariff on India, with an additional 25% as punitive tariff for trading with Russia. US' higher tariffs on India result in a pricing disadvantage of 30–35% for Indian exports, making them less competitive compared with those from China, Vietnam, Cambodia, the Philippines, and other Southeast and South Asian countries. The US accounts for nearly 20% of India's total exports. The central bank accounted for the impact of tariffs in the economy while making its projections, Malhotra clarified.

 

Against these exogenous risks, the MPC draws comfort from benign inflation to support growth. As such, the RBI even tweaked its language, from having "limited" room for policy easing to "have room" for policy easing, supported by "surprisingly, really really" benign inflation print. 

 

The RBI Wednesday cut its headline inflation forecast for the current quarter ending December by 130 bps to 1.8% and lowered the projection for 2025-26 (Apr-Mar) by 50 bps to 2.6%. As per the latest data, India's headline CPI inflation rose to 2.07% in August from an eight-year low of 1.61% in July because of a rise in food prices. This was the first time CPI inflation has risen in 10 months and the seventh consecutive month when it was below the RBI's medium-term target of 4.0%. The lowest CPI inflation print in the current series was 1.46% in June 2017.

 

The central bank also lowered the inflation projection for the quarter ended September by 30 bps to 1.8%. The statistics ministry will release CPI data for September on Oct. 13. A back-of-the-envelope calculation shows inflation was around 1.72% in September. Financial and price stability is foremost for the central bank, so every step will be taken to keep it under control, Malhotra said, adding that necessary steps will be taken to deal with weather-related risks to inflation, if any. 

 

Malhotra also said that inflation forecast includes the impact of the sweeping GST changes and the US' tariffs.

 

Prime Minister Narendra Modi had on Aug. 15, from the ramparts of Red Fort, announced GST reforms as part of next-generation structural reforms that will support the domestic economy. Following this announcement, the GST Council overhauled the indirect tax regime by collapsing the four-slab GST structure of 5%, 12%, 18%, and 28% to a two-slab structure of 5% and 18%. The council also introduced a new GST rate of 40%, to be imposed on sin and luxury goods. All new rates, except for those on tobacco products, took effect from Sept. 22.

 

Malhotra said while this will have a positive impact on the economy, it will not fully offset the impact of US' tariffs. Nonetheless, the RBI and the government will make efforts to counter external headwinds, he said. The government has put in several steps to ease supply chain management, he said, adding that governments's capital expenditure push has also worked, leading to good demand in a lot of sectors for capex. 

 

Speaking about the discussion paper seeking comments from stakeholders on the flexible inflation targeting framework that is up for review in FY26, Malhotra said that it has got various suggestions so far. The existing framework is set to lapse on Mar. 31. Under the monetary policy framework, the government has kept 4% as the CPI inflation target for Apr. 1, 2021, to Mar. 31, 2026, with the upper and lower tolerance limits of 6% and 2%, respectively. The government, in consultation with the RBI, determines the inflation target in terms of the CPI, once in five years.  End

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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