‘Lower policy rate more appropriate in current juncture’

Supporting growth through monetary easing was the prime motivation of the six-member Monetary Policy Committee (MPC) behind their unanimous decision to vote for a rate cut, the minutes of the February 5-7, 2025 MPC meeting revealed.

“Domestically, there is a need to preserve the high growth momentum, while maintaining price stability, necessitating monetary policy to use various policy instruments to maintain the inflation-growth balance,” RBI Governor and MPC member Sanjay Malhotra said in a statement.

“The food inflation outlook is turning decisively positive. Moreover, the Budget proposals on agriculture and the commitment to fiscal consolidation, among others, are positive for price stability and would help to anchor inflation expectations over the medium term,” he stated.

“Given the macroeconomic outlook when inflation is expected to align with the target, and recognising that monetary policy is forward-looking, I view a lower policy rate to be more appropriate at the current juncture,” he emphasised.

“Monetary policy easing, coupled with good agricultural sector growth and various growth supportive measures in the Union Budget, would boost household consumption, investment in housing, capital expenditure, etc., thereby strengthening the pick-up in aggregate demand,” he opined.

In his statement, internal MPC member Rajiv Ranjan said, “The baseline projections suggest headline inflation to average at 4.2 per cent during 2025-26. Oil and other global commodity prices are expected to remain rangebound. On the other hand, growth slow down concerns are more evident today.”

“To sum up, having duly sequenced our stance and liquidity measures during the last two policies and given the outlook on inflation, time has come to accord higher weight to growth in our policy setting,” he emphasised.

“Coupled with government measures to boost consumption in the Union Budget, monetary policy easing will support higher aggregate demand,” he stated.

Heightened global uncertainty, however, persists, necessitating the need to continue with neutral stance to retain flexibility to act appropriately as per the evolving situation, he maintained.