After Friday’s 50 bps rate cut, monetary policy left with very limited space to support growth: RBI Governor

Malhotra said global backdrop remains fragile and highly fluid. The uncertainty around the global economic outlook has somewhat ebbed since the MPC meet in April in the wake of temporary relief and the optimism around trade negotiations. “However, it is still high to weaken sentiment and lower global growth prospects. Accordingly, global growth as well as trade projections have been revised downwards by multilateral agencies,” he said.

“By reverting its policy stance to neutral, the RBI signals that it may now pause to assess the full transmission of these cuts before considering further action,” said Rahul Goswami, CIO & MD (Fixed Income), Franklin Templeton India.

ECONOMCY PROGRESSING WELL: GOVERNOR

On both inflation and growth fronts, the Indian economy is progressing well and it is broadly on expected lines, and this despite the global uncertainty that we have. “Strong macroeconomic fundamentals and benign inflation outlook provides space to monetary policy to support growth, while remaining consistent with the goal of price stability,” Malhotra said.

“As the global environment remains uncertain, it has become even more important to focus on domestic growth amidst sustained price stability. Accordingly, today’s monetary policy action should be seen as a step towards propelling growth to a higher aspirational trajectory,” he said. The RBI has retained the FY26 growth estimate at 6.5 per cent.

Moreover, the last mile of disinflation is turning out to be a little more protracted, he said. As growth-inflation trade-off is becoming more challenging, monetary authorities are charting out more cautious and carefully calibrated policy trajectory. “Looking beyond the near term, growing economic and financial fragmentation is reshaping the global economy. Besides, complex interconnections with the financial system, elevated debt levels and growing influence of frontier technologies like AI are raising financial stability concerns,” Malhotra said

Amidst heighted volatility in capital flows and exchange rates, coupled with policy constraints, central banks of emerging market economies have a tougher task to stabilize their economies against global spillovers, he said.

“In the global milieu, the Indian economy presents a picture of strength, stability and opportunity. First strength comes from the strong balance sheets of the five major sectors – corporates, banks, households, government and the external sector,” he said.

There is stability on all three fronts – price, financial and political – providing policy and economic certainty in this dynamically evolving global economic order, he said.

The Indian economy offers immense opportunities to investors, both domestic and foreign, through three Ds – demographic, digitization and domestic demand, he said. These fundamentals provide the necessary core strength to cushion the Indian economy against the global spillovers and propel it to grow at a faster pace, Governor said.