Reserve Bank of India (RBI) governor Sanjay Malhotra hasn’t ruled out more rate cuts, provided inflation continues its downward trend and remains below its projections.
In an interview to the Business Standard, Malhotra spoke about the thinking behind the larger-than-expected 50 basis points repo rate reduction and the CRR cut. In the wide-ranging interview, he also discussed how the “neutral” stance, which many see as signalling no more rate cuts, should be interpreted.
On future rate cuts
"As regards any future easing, while it will not be right on my part to pre-empt the MPC, if the inflation outlook turns out to be below our projections, it will open up policy space. As noted by the MPC, it will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth-inflation balance," said Malhotra.
Malhotra's remarks comes after the RBI’s monetary policy committee on June 6 said it has limited space to support economic growth. The central bank slashed the repo rate by 50 bps to 5.5 percent while shifting its stance from “accommodative” to “neutral”.
On inflation
Malhotra said May’s inflation reading of 2.82 percent was in line with expectations and both current and projected macroeconomic conditions played a role in the shift to a “neutral” stance.
"In fact, for Q1 of 2025-26, our projection given in the MPC resolution is 2.9%. The average inflation for April-May works out to 3.0%. So, policy decisions were taken by the MPC in its June meeting keeping these numbers in mind," he explained.
On stance
The governor said that the shift to a “neutral” stance does not signal an immediate reversal in the policy cycle.
"Neutral by definition is neither hawkish, nor dovish. The change in stance to neutral from accommodative does not imply an immediate reversal in the policy cycle; rather, it is a reflection of the current setting of monetary policy and how much more space it has to support growth," he said.
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