RBI Governor Sanjay Malhotra highlighted the challenge of maintaining growth momentum while ensuring price stability. “Monetary policy globally is traversing through a challenging time. Domestically, ensuring price stability while sustaining high growth is essential,” he said.
He pointed to a “robust Kharif harvest, seasonal vegetable price correction, and a promising Rabi crop” as factors likely to ease food inflation.
Malhotra also noted that “budget proposals on agriculture and fiscal consolidation are positive for price stability.” Given the macroeconomic outlook, he said, “A lower policy rate is more appropriate at the current juncture.”
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Deputy Governor M Rajeshwar Rao noted that “inflation outlook is turning more benign” and that a “correction in food inflation is necessary for durable softening of headline inflation.” He called for “watchfulness, coupled with alertness and nimbleness in response.”
Justifying the rate cut
RBI Executive Director Rajiv Ranjan termed the rate cut “the most rational and appropriate next step.” He stressed that the “monetary policy needs to be sensitive to the evolving growth scenario and use policy instruments, including liquidity injection, to reinvigorate growth.”
He also pointed out that “the Union Budget has prepared the ground for a counter-cyclical push to growth, which can be complemented by monetary policy.”
Stronger case for bigger cuts
External MPC member Nagesh Kumar argued that “supporting growth cannot be overemphasised.” He called for a more aggressive cut, stating, “We could be more ambitious and target a 50 basis point cut to signal India’s commitment to reviving economic momentum.” However, for this policy, he voted for a 25 bps cut.
Saugata Bhattacharya stressed the need to support “both consumption and investment-led growth.” While he remained “cautiously optimistic about the downward trajectory of inflation,” he warned that “the policy repo rate might soon become excessively restrictive, increasing the risk of damaging growth impulses.”
The Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 6.25% on Friday, February 7, marking the first rate cut in nearly five years. Policymakers maintained a “neutral stance” to retain flexibility, as global uncertainties and inflation risks persist.