The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), under the leadership of new Governor Sanjay Malhotra, announced a 25 basis point reduction in the repo rate, lowering it to 6.25%.
Malhotra revealed that the committee unanimously decided to maintain a neutral stance, a shift made in October of the previous year, indicating a flexibility to adjust policy rates in response to the evolving economic environment.
He said, “The MPC remains unambiguously focused on a durable alignment of inflation with the target while supporting growth.”
The RBI had kept the repo rate unchanged at 6.5% for the previous eleven consecutive meetings. In the December policy meeting, the MPC voted 5-1 in favor of maintaining the rate, focusing on stability while continuing to monitor inflation trends.
Additionally, the December policy included a 50 basis point reduction in the Cash Reserve Ratio (CRR), bringing it down to 4%, aimed at enhancing liquidity and supporting credit growth.
For the financial year 2024-25, the RBI has projected India’s real GDP growth at 7.2%, while the Economic Survey forecasts a 6.4% growth, in line with the National Statistical Office (NSO) estimate.
The expectations of rate cut had soared in the light of the Union Budget for FY26, which lowered the tax burden on the common man in order to resuscitate spending. The Budget also kept the capital expenditure target for the next fiscal at almost the same level as budgeted last year (which was revised down this year).
RBI MPC on growth estimates
The RBI MPC pegged India’s FY26 GDP growth at about 6.7%, Governor Malhotra announced.
In the previous meeting in December, the then RBI Governor Shaktikanta Das had pegged India’s growth for this fiscal year at 6.6%.
RBI expects economic growth in Q1, Q2, Q3 and Q4 of the next fiscal year starting April 1 at 6.7%, 7%, 6.5% and 6.5%, respectively.
The monetary policy during its December 2024 meeting had reduced the growth forecast for Q3FY25 to 6.8% from 7.4%, Q4 growth target to 7.2% from 7.4%, and Q1FY26 was revised to 6.9% from 7.3%.
Global headwinds continue to impact the outlook and pose downward risks, the governor said.
Inflation forecast for FY26
The Governor said that the inflation has declined, supported by a favourable outlook on food and is expected to moderate in FY26, offering further relief to Indian households.
The RBI has predicted inflation at 4.2% for fiscal year 2025-26. For the four quarters of FY26, the RBI MPC has projected inflation to be at 4.5% in the first quarter; Q2 at 4%; Q3 at 3.8% and Q4 at 4.2% with risks evenly balanced.
Source #ET
