RBI Governor Sanjay Malhotra
| Photo Credit:
SHASHANK PARADE
All six members of RBI’s rate setting panel struck a dovish note at their recent meeting due to the possibility of the global tariff war affecting India’s growth prospects even as the retail inflation outlook has turned benign, per the minutes of the meeting released by RBI on Wednesday.
This prompted Monetary Policy Committee (MPC) members to unanimously vote for a 25 basis points (bps) repo rate cut (from 6.25 per cent to 6 per cent) and change the monetary policy stance to “accommodative” from “neutral” at their meeting held from April 7th to 9th. .This rate cut came on the back of 25 bps reduction in MPC’s February meeting.
RBI Governor Sanjay Malhotra emphasised that when consumer price inflation is decisively around its target rate of 4.0 per cent and growth is still moderate and recovering, monetary policy needs to nurture domestic demand impulses to further increase the growth momentum. This is specially so amidst an uncertain global environment, which has amplified downside risks to growth.
“This will bolster private consumption and support a revival in private corporate investment activity. Going forward too, considering the evolving growth-inflation trajectories, monetary policy needs to be accommodative,” Malhotra said.
Deputy Governor M Rajeshwar Rao observed that strong rural demand on brightened prospects for agriculture along with improving urban demand, and a resilient services sector bode well for the growth outlook. However, global headwinds pose downside risk to growth. Uncertainties remain high going ahead.
“Assessing the overall situation, we find that while inflation outlook remains benign, GDP growth could face a downward pressure. The recent waves of global uncertainty demand decisive policy support to growth.” he said.
Inflation enters a decisive softening phase
Executive Director Rajiv Ranjan, Executive Director, emphasised that inflation has entered a decisive softening phase with risks to growth outweighing those of inflation.
“On inflation, there seems to be greater conviction of inflation remaining aligned with the 4 per cent target during the current financial year….All in all, considerable progress achieved on the disinflation front has offered latitude to monetary policy to be growth supportive.
“On balance, while growth is still reasonable, it is lower than our aspirations and needs policy impetus amidst a challenging global environment….we need to continue to accord higher weight to growth in our policy setting amidst benign inflation outlook with reasonable degree of definiteness,” he said.
Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi, opined that given the need to support growth through private consumption and investment, the MPC should continue with further repo rate cut.
“One could be more ambitious and target a 50 basis point cut, which in my view may be more effective than two cuts of 25 basis points each.
“However, given the global uncertainty, we can go about it cautiously in a phased manner. We need to remain watchful regarding the evolving global scenario and its impact on India’s growth outlook,” he said.
Policy easing “good news”
Mumbai-based Economist Saugata Bhattacharya, said the forecasted moderate inflation path (RBI forecasts an average 4 per cent CPI inflation in FY26) opens up more space for “good news” policy easing.
Moreover, the present resilience of economic activity does not as yet necessitate additional “bad news” actions associated with prospects of a significant growth slowdown. RBI’s liquidity infusion will also hasten transmission to the relevant interest rates.
While concurring with the change of stance, he noted that this does not provide guidance of a pre-determined policy easing path.
Ram Singh, Director, Delhi School of Economics, observed that with growth below potential and a benign inflation outlook, the MPC should support growth by cutting the repo rate.
In addition, there is a strong case for changing the stance to accommodative as a signal of policy guidance for the near term.
“For an effective and fast transmission of interest rate cuts and consistent with a changed stance, the RBI’s liquidity management tool need to be geared accordingly to operationalise these changes,” he said.
In particular, monitoring the liquidity conditions to take timely measures to ensure adequate liquidity will be salient to the transmission of the rate cuts.
Published on April 23, 2025
