Neutral stance doesn't mean RBI cannot cut rates, says Governor Sanjay Malhotra

RBI Governor Sanjay Malhotra

RBI Governor Sanjay Malhotra on July 15 said that the central bank's Monetary Policy Committee (MPC) may cut rates even further this year if it deems necessary. Speaking to CNBC-TV18, Malhotra said that the central bank is in a neutral stance, which means it can go "in either direction".

The RBI Governor said that the 'neutral' stance gives the MPC the flexibility to go "either upwards or downwards". He noted that the lower inflation numbers of April-June quarter will be assessed by the central bank to come out with its projections. "We are in a neutral stance, which means we can move in either direction depending on the outlook, not just the current data," he said.

Notably, this comes as several analysts expected the RBI MPC to hold rate cuts for now, after higher than expected 50 bps rate cut in June.

"The MPC will factor in the evolving situation, and then take a call as to what kind of rate and policy the economy really needs. If the inflation is lower, the forecast is lower, growth is lower, certainly the rates can be cut," the governor said during an interview with the news channel, while adding that the central bank has to wait and watch.

Malhotra said that 6.5 percent growth rate recorded in FY25 is in line with RBI's latest estimate. "There are mixed signals but aligned with our expectations. The monsoon is favourable, optimism in consumer surveys is high, trade deals are ongoing — we will continue to review our growth projections," he added.

When asked what would be a trigger for rate cut, Malhotra said that it will be a mix of inflation and growth numbers, along with emphasis on price stability.

Notably, India's wholesale inflation dipped to a 20-month low of -0.13 percent in June after falling to a 14-month low of 0.4 percent in the previous month, data released on July 14 show. This is the third straight month that the reading has remained below 1 percent.

Wholesale food inflation, which fell to a 19-month low of 1.72 percent, dropped further to a two-year low of -0.26 percent. Manufactured goods, which account for more than two-thirds of the index, recorded 1.97 percent inflation, down from 2.04 percent in May.

India’s inflation has remained subdued since the start of the year, giving the central bank room for more rate cuts.

The Reserve Bank of India in June announced MPC's decision to cut repo rate by 50 basis points to 5.5 percent from 6 percent earlier. The jumbo rate cut comes after two successive rate cuts of 25 bps each in February and April.

The RBI Governor Sanjay Malhotra also announced a 100 basis points CRR cut to be effected in 4 equal tranches of 25 basis points starting from September 6, October 4, November 1 and November 29.

The RBI MPC is set to hold its next meeting from August 4 to August 6.