RBI MPC minutes: Members saw strong case for rate cut to aid growth on benign inflation view

Reserve Bank of India

The members of the monetary policy committee (MPC) of the Reserve Bank of India (RBI) said the anticipation of the inflation going down further has given the flexibility to the central bank to support growth with frontloading of rate cuts.

“Since the April policy, the incoming data point to more than anticipated softening of inflation. The Reserve Bank’s anti-inflationary policy stance in the last two years, supply side measures by the Government and a good agricultural season seem to have helped gain control over inflation. This has given flexibility and opportunity for monetary policy to support growth,” said MPC member Rajiv Ranjan, the minutes showed.

Additionally, Poonam Gupta, Deputy governor said the issue then arises of how much support can be provided, and at what pace. “Overall, while a case can be made for two consecutive rate cuts of 25 bps each in this as well as the next policy cycle, there is also merit in front-loading these cuts.”

RBI, on June 6, had 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 MPC decided to change the stance to neutral.

Along with this, RBI 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.

Further, the central bank has reduced its Consumer Price Index (CPI) inflation projection to 3.7 percent from its earlier projection of 4 percent for FY26. Notably, after this, India’s retail inflation eased to a 75-month low of 2.82 percent in May, compared with 3.2 percent in April, as food inflation eased below 1 percent for the first time in nearly four years.

"With prospects of an above-normal southwest monsoon, food inflation is expected to remain moderate during the year. Core inflation is also likely to remain largely contained, especially in an environment of moderating commodity prices," RBI Governor Sanjay Malhotra said.

Malhotra added that it is expected that the front-loaded rate action along with certainty on the liquidity front would send a clear signal to the economic agents, thereby supporting consumption and investment through lower cost of borrowing.