For the second consecutive time in a row, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has cut the repo rate – the rate at which it lends to banks – by 25 basis points. The current repo rate stands at 6%. The MPC has also changed its policy stance from neutral to accommodative.
Explaining this change in stance, RBI Governor Sanjay Malhotra said, “The stance of monetary policy signals the intended direction of policy rates going forward. Accordingly, with respect to the policy rate, which is the mandate of the MPC, today’s change in stance from ‘neutral’ to ‘accommodative’ means that going forward, absent any shocks, the MPC is considering only two options – status quo or a rate cut.”
GDP and Inflation Projections
Taking note of recent global volatilities, the MPC has also revised Gross Domestic Product (GDP) projections to 6.5% with expected quarterly growth of 6.5% (Q1); 6.7% (Q2); 6.6% (Q3) and 6.3% (Q4) respectively. After the previous MPC meeting in February 2025, RBI had projected annual real GDP growth at 6.7%.
The central bank, however, is positive about being in control of inflation during the current financial year. It anticipates annual Consumer Price Index (CPI) inflation to be at 4% with quarterly inflation expected to be at 3.6% (Q1); 3.9% (Q2) 3.8% (Q3) and 4.4% (Q4) respectively. After a 14-month-high in October 2024 at 6.21%, CPI inflation has been steadily moderating and reached a seven-month low of 3.6% in February 2025.
Reciprocal Tariffs and Growth
Referring to recent upheavals due to reciprocal tariff announcements made by the United States and their potential impact on growth, Governor Malhotra observed, “Uncertainty in itself dampens growth by affecting investment and spending decisions of businesses and households. Second, the dent on global growth due to trade frictions will impede domestic growth. Third, higher tariffs shall have a negative impact on net exports. There are, however, several known unknowns - the impact of relative tariffs, the elasticities of our export and import demand; and the policy measures adopted by the Government including the proposed Foreign Trade Agreement with the USA, to name a few. These make the quantification of the adverse impact difficult.”
The MPC is a six-member empowered committee constituted by the central government and comprises of the RBI Governor, a Deputy Governor, an officer of the RBI, an economist and two independent members appointed by the government. All MPC members have one vote, and in the event of an equality of votes, the Governor has a second or casting vote. All members of the MPC are required to write a statement specifying the reasons for voting in favour of, or against the proposed resolution.
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