Nagesh Kumar, an external member of the Reserve Bank of India’s (RBI's) Monetary Policy Committee (MPC), told Moneycontrol in an interview that the repo rate is only one of many factors that impact economic growth.
He further said that other than the monetary policy and liquidity management, the fiscal stimulus (through public investment), tax rates that determine disposable incomes, and external factors that have a bearing on the export demand for Indian goods, among others, also determine the growth trajectory.
The country's GDP growth projection is being keenly watched after the slowdown in the economy led to a sluggish second quarter in the current financial year and a lower first advance estimate.
India's GDP growth declined to a seven-quarter low of 5.4 percent in July-September FY25, against RBI's own projection of 7 percent.
The central bank has projected real GDP growth of 6.7 percent for FY26, with Q1 revised down to 6.7 percent from 6.9 percent, Q2 down at 7 percent from 7.3 percent, and Q3 and Q4 at 6.5 percent each.
Prior to this, the Economic Survey 2025 had estimated a real GDP growth of 6.4 percent in FY25, which was 20 basis points (bps) lower than what was projected by RBI in its December monetary policy.
The survey also highlighted that the country's real GDP was expected to grow at 6.3-6.8 percent in FY26, signalling "moderate prospects buffeted by multiple headwinds, including a looming global trade war and artificial intelligence-induced disruptions."
Most MPC members have expressed concern about growth in the minutes of the February MPC meeting, and said that an easing inflation trajectory gave room to the RBI to cut rates. Kumar was among the six members who voted for a rate cut in the meeting.
In February, the RBI cut the repo rate by 25 bps to 6.25 percent. The rate for the Standing Deposit Facility was set at 6 percent, while the Marginal Standing Facility and bank rates were 6.5 percent.
The RBI had increased the repo rate by 250 bps between May 2022 and February 2023. Since then, for two years, the repo rate was held at 6.5 percent to check inflation and bring it to the medium-term target of 4 percent.
On future rate action, Kumar said that it would depend on the evolving growth-inflation dynamics.
“One will have to wait and see how the growth–inflation dynamics evolve between now and the April policy. The same applies to liquidity management measures such as the CRR (cash reserve ratio),” Kumar added.
He added that global commodity prices may soften due to a number of factors. For instance, crude oil prices may head south due to the slowdown in China, the recently announced ceasefire in the Middle East, prospect of peace in Ukraine, and the US producing more oil under Trump.
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