The Reserve Bank of India (RBI) Governor Sanjay Malhotra said real interest rates needs to be lower considering the benign headline and core inflation outlook, minutes of the Monetary Policy Committee meeting showed.
“Demand pressures, as evident from low core inflation (excluding precious metals), are minimal and projected to remain low in the next three quarters,” Malhotra said.
The central bank in the December monetary policy has revised inflation projection for FY26 to 2 percent from 2.6 percent projected earlier.
The Q3 inflation projection was at 0.6 percent as compared to 1.8 percent earlier, and Q4 projected at 2.9 percent as compared to 4.0 percent earlier, and retail inflation for Q1 of the next fiscal is seen at 3.9 percent as compared to 4.5 percent projected earlier, and RBI projects Jul-Sept FY27 CPI inflation at 4 percent.
Further, Ram Singh, an external member on the RBI’s MPC said a delay in the rate cut would hurt real GDP growth by keeping real interest rates unnecessarily above growth-supportive levels. “The delay will extend the low-inflation phase, which has important implications both micro and macro including a less-than expected nominal GDP growth.
After the monetary policy, India's retail inflation in November inched up to 0.7 percent, from 0.3 percent in October, but price pressures remained exceptionally subdued for the second straight month.
In December monetary policy, the RBI has cut repo rate after keeping rates unchanged for two times in a row to 5.25 percent from 5.5 percent earlier.
The MPC kept the stance unchanged at 'Neutral'. The decisions were taken unanimously by the six-member rate-setting panel.
As a result, the standing deposit facility (SDF) rate remains changed to 5 percent and the marginal standing facility (MSF) rate and the Bank Rate at 5.5 percent.
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