Given the uncertainties and after having reduced the policy rates by 100 bps in quick succession since February, in the prevailing growth-inflation scenario and the outlook, monetary policy would be left with very limited space to support growth, Monetary Policy Committee (MPC) member and Reserve Bank of India (RBI) Governor Sanjay Malhotra observed in his MPC statement.
“Thus, it would be appropriate to change the stance from accommodative to neutral,” said Mr. Malhotra, according to the minutes of the June 4-6, 2025, MPC meeting released on Friday.
“The global economic situation remains fragile and fluid. Apart from the near-term uncertainties, the medium-term outlook is also overcast amidst recurrent geopolitical flareups and reshaping of a new global trade order,” he stated. Emphasising that global growth at present was on a weak footing, he said inflation was generally receding, though at a slow pace.
He said the heightened global uncertainties might put on hold investment decisions by businesses, underscoring the need for growth supportive policies.
“The growth forecast remains the same as the outturn of last year which was 6.5%. On the whole, I believe that, given the current macroeconomic conditions and the outlook, monetary policy needs to support growth, while remaining consistent with the objective of price stability,” he emphasised.
“Given the sharp reduction in inflation of about 3 percentage points over the past few months [6.2 in October 2024 to 3.2 in April 2025], and the projected reduction in annual average inflation by almost one percentage point from 4.6 to 3.7%, I vote for a 50 bps rate cut,” he stated.
MPC member and Deputy Governor Poonam Gupta said while a case could be made for two consecutive rate cuts of 25 bps each in this as well as the next policy cycle, there was also merit in front-loading these cuts.
“Therefore, I vote for a policy rate cut by 50 bps in this meeting. This should help in fostering policy certainty and faster transmission than a staggered rate cut, and in more effectively countering the challenges emanating from the global economy,” she observed.
“Going forward, I support a change in stance from accommodative to neutral. This means that any further actions should be contingent upon incoming data and the evolving global uncertainties,” she stated.
External MPC member Sugato Bhattacharya, the only member who had voted for a lower 25 bps rare cut stated that the current growth impulses continued to exhibit economic resilience despite the prevailing uncertainty stemming from external developments.
He said RBI’s liquidity infusion and other measures had played a key role in this process, partly via lower money market and short-term interest rates reducing the overall banks’ cost of funds.
“RBI data suggests that ₹9.5 lakh crore of durable liquidity was injected into the banking system since January ‘25. In this context, I believe that the RBI’s assurance of continuing large durable liquidity support is likely to have a more dominant effect on further transmission compared to a deep cut in recognising the prevailing uncertainties,” he said.
“I believe that a measured and cautious progress in policy easing is more appropriate at this time. Accordingly, I vote to cut the policy repo rate by 25 basis points to 5.75%,” he stated.
Published – June 20, 2025 09:39 pm IST
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