We’ve done our bit: RBI's message to govt on growth; shifts stance to ‘neutral’ as policy space narrows

Malhotra reiterated that inflation is no longer a binding concern, calling it “safe to assume we’ve won the war against inflation.”

In a clear signal to the government, the Reserve Bank of India (RBI) on June 6 said it has front-loaded its monetary support to the economy and now expects other levers, especially fiscal policy, to drive growth. The central bank cut the benchmark repo rate by 50 basis points to 5.5 percent and shifted its policy stance from “accommodative” to “neutral”.

The Monetary Policy Committee (MPC) felt that under the current circumstances, there is limited space to reduce policy rates further, RBI Governor Sanjay Malhotra said at the post-policy press briefing.

Catch the live coverage on RBI MPC meeting outcome here

All six members of the MPC were unanimous in the decision to change the stance. While the neutral stance allows flexibility for the RBI to either cut or hike rates in the future, depending on economic data, Malhotra clarified that it does not signal any immediate action in the next policy review. “Neutral stance doesn’t mean action is imminent. It simply reflects a shift in the balance of risks,” he said.

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The rate cut, the third since February, was delivered in one go to ensure faster policy transmission. “We front-loaded rate cuts to allow for quicker monetary transmission,” Malhotra said, adding that ample liquidity in the banking system will aid the process. “We need liquidity for faster transmission of policy action.”

Addressing concerns around economic momentum, Malhotra said that while a 6.5 percent GDP growth rate is “good”, there is room for improvement. “Our aspiration is to grow GDP by 7–8 percent. We’d like the economy to grow as fast as possible,” he said.

Catch the RBI MPC outcome highlights here

The governor also noted that the current Cash Reserve Ratio (CRR) of 3 percent is “comfortable” and supportive of improving credit offtake. “CRR at 3 percent is aiding liquidity and helping transmission,” he said.

Malhotra reiterated that inflation is no longer a binding concern, calling it “safe to assume we’ve won the war against inflation.” Easing international commodity prices and benign food inflation are expected to continue, he said.

On foreign exchange policy, the RBI maintained its long-standing position of non-intervention. “We do not target any level or band on exchange rates. Our forex policy is very clear, let the market determine prices,” Malhotra said.

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Ranen Banerjee, Partner and Leader, Economic Advisory at PwC India, said the MPC’s decision to deliver a larger-than-expected 50 basis point rate cut, alongside a staggered 100 bps reduction in the Cash Reserve Ratio (CRR) and a shift to a neutral stance, marks a strong and unexpected policy signal. He noted that the move appears to be driven by weak Q4 FY25 GDP data, particularly in manufacturing and consumption, amid persistent global trade disruptions and geopolitical headwinds. Banerjee added that the combination of rate easing and additional liquidity, despite an already comfortable system liquidity position, is likely to act as a second engine for consumption growth, complementing the boost expected from income tax cuts in FY26. The policy shift, he said, is significantly positive for urban consumption, and could also provide much-needed momentum to real estate, discretionary spending, and private sector capital expenditure.