With sharp decline in inflation, monetary policy needs to support growth: RBI Governor

Malhotra said with a projection of 3.7 per cent for 2025-26, the inflation outlook for the year is looking more benign than the RBI had anticipated in the April policy. The growth forecast remains the same as the outturn of last year which was 6.5 per cent.

“Given the sharp reduction in inflation of about 3 percentage points over the past few months (6.2 per cent in October 2024 to 3.2 per cent in April, 2025), and the projected reduction in annual average inflation by almost one percentage point from 4.6 to 3.7 per cent, I vote for a 50 bps rate cut,” Malhotra said, according to the minutes.

It is expected that the front-loaded rate action along with certainty on the liquidity front would send a clear signal to the economic agents, thereby supporting consumption and investment through lower cost of borrowing, he said.
RBI Deputy Governor Poonam Gupta said that there was both a need as well as the room for monetary policy to provide support to the economy in order for it to attain and even surpass the past rates of growth.

“The issue then arises, how much support can be provided, and at what pace. Overall, while a case can be made for two consecutive rate cuts of 25 bps each in this as well as the next policy cycle, there is also merit in front-loading these cuts. Therefore, I vote for a policy rate cut by 50 bps in this meeting,” Gupta said.

This, she said, should help in fostering policy certainty and faster transmission than a staggered rate cut, and in more effectively countering the challenges emanating from the global economy.

External MPC member Saugata Bhattacharya, who voted for a 25 bps cut in the policy repo rate, said that given the prevailing uncertainties, a measured and cautious progress in policy easing is more appropriate.

“Phrases related to ‘uncertain’ and ‘volatility’ occur in the MPC statement 6 times. This continuing elevated uncertainty remains, to my mind, the primary reason to exercise caution in pacing monetary policy easing. Hence, there is little to add to the essence of my statement in the minutes of the last April ‘25 meeting,” he said.

Another external MPC member Nagesh Kumar, who voted for a 50 bps reduction in the repo rate said, “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.”
A double dose of rate cut is likely to bring down lending rates significantly, helping to spur the investment and consumption of durable goods, Kumar said.

Monetary Policy Committee member and the RBI’s Executive Director Rajiv Ranjan said that there is a risk that a combination of 50 bps cut with an accommodative stance could mislead financial markets about the scale and scope of further monetary policy easing, repricing of which eventually 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. 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,” Ranjan said.