Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday made a 25 basis point reduction in the repo rate, taking it down to 6.5%. This is the second rate reduction in the calendar year and has come at a time when there is increasing global economic uncertainty on account of trade tariffs led by US President Donald Trump.
The RBI’s Monetary Policy Committee (MPC) also shifted its policy stance from “neutral” to “accommodative”, signaling potential further rate cuts or status quo in upcoming policy reviews.
Uncertain Road Ahead for Repo Rate Cuts
Speaking to reporters, Malhotra emphasized the uncertain outlook for further reductions in the repo rate due to ongoing global volatility.
“We have reduced repo rates. We have changed the stance going forward, which means that the direction of the policy repo rate is downwards, where it will reach we really don’t know. I’m Sanjay, but I’m not the Sanjay of Mahabharata, to be able to foresee that far. I do not have that divine vision that he had,” said the Governor, providing a humorous comment amidst serious economic discussion.
Government and RBI Should Act in Concert
Responding to a question regarding whether the RBI would play a more prominent role in steering the changing global economic landscape, Malhotra opined that the central bank and the government need to act in concert.
“It’s a joint effort. You know, who does more of the heavy lifting, etc. The government has done its bit. I think, in the budget that you saw recently, a large number of measures, whether you know it is in terms of the increased capex, whether it is in terms of the tax rebates on the personal income tax side,” he explained.
Tariff War Adds to Economic Headwinds
Malhotra also recognized that recent international events have added even more to the complexity of the economic situation.
“The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation,” he added.
Revised Growth Projection
RBI has reduced its GDP growth estimate for FY 2025-26 from 6.7% to 6.5%. Malhotra promised that the central bank is still committed to non-inflationary growth.
“The domestic growth-inflation trajectory demands monetary policy to be growth supportive, while being watchful on the inflation front. We are aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance. As before, we shall remain agile and decisive in our response and put in place policies that are clear, consistent, credible and in the best interest of the economy,” he said.
