RBI policy supports economy

Given the current macroeconomic conditions and the outlook, monetary policy needs to support growth, while remaining consistent with the objective of price stability. 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.

Heightened global uncertainties may put on hold investment decisions by businesses, underscoring the need for growth supportive policies, Reserve Bank of India Governor Sanjay Malhotra said in his statement, released on Friday, as a part of the minutes of the MPC meeting.

The post-COVID recovery so far has been largely led by public investments, while private sector investments have been weak despite high capacity utilisation and improved corporate balance sheets.

“With a projection of 3.7% for 2025-26, the inflation outlook for the year is looking more benign than we had anticipated in the April policy. On the other hand, while growth remains steady, it is lower than our aspirations. The growth forecast remains the same as the outturn of last year which was 6.5%.” 

“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. Given the sharp reduction in inflation of about 3 percentage points over the past few months, 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,” the governor added.  

As regards the stance for monetary policy, it is important to keep in mind that the stance not only reflects the current macroeconomic conditions, but more importantly the outlook that goes into policy calculus.