Sanjay Malhotra,Governor,Reserve Bank of India
The Monetary Policy Committee (MPC), which consists of three RBI and three external members, favoured a rate cut to provide stimulus to the sluggish economy, which is expected to grow at its slowest pace in four years in the current fiscal year
MUMBAI: The Reserve Bank of India (RBI),under the leadership of new governor Sanjay Malhotra, cut its key repo rate for the first time in nearly five years on Friday by 25 basis points to 6.25% after having kept the rate unchanged for eleven straight policy meetings.
Malhotra, a career bureaucrat who replaced Shaktikanta Das barely days after the last bi-monthly MPC meeting in December, while unveiling the last bi-monthly monetary policy of this fiscal year, forecast the Indian economy to grow at 6.7 per cent in the fiscal year starting April 2025 while inflation rate to lower to 4.2 per cent.
The Monetary Policy Committee (MPC), headed by Malhotra and consists of three RBI and three external members, favoured a rate cut to provide stimulus to the sluggish economy, which is expected to grow at its slowest pace in four years in the current fiscal year.
All six MPC members voted to cut the repo rate and maintained its monetary policy stance at “neutral”.
RBI has pegged India’s FY26 GDP growth at about 6.7%, said Malhotra.
RBI expects economic growth in Q1, Q2, Q3 and Q4 of the next fiscal year starting April 1 at 6.7%, 7%, 6.5% and 6.5%, respectively.
The RBI projected the retail inflation at 4.2 per cent for next financial year beginning April while retaining the forecast for 2024-25 at 4.8 per cent.
RBI Governor Sanjay Malhotra said food inflation pressures, in absence of any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects.
He further said core inflation is expected to rise but remain moderate.
For FY26, inflation projected by the RBI is at 4.2 %, with the following breakdown. Q1FY26: 4.5 % from 4.6 % Q2FY26: 4% from 4% Q3FY26: 3.8 %, Q4FY26: 4.2 %.
Indian economy, though strong and resilient, did not remain immune to the global uncertainties. Global headwinds continue to impact the outlook and pose downward risks. The global economy is growing below the historical average .uncertain global environment has posed difficult policy trade-offs for EMEs, cautioned Malhotra.
The monetary policy during its December 2024 meeting had reduced the growth forecast for Q3FY25 to 6.8% from 7.4%, Q4 growth target to 7.2% from 7.4%, and Q1FY26 was revised to 6.9% from 7.3%.
The MPC noted that though growth is expected to recover, it is much lower than last year and inflation dynamics have opened space for rate easing, RBI governor Sanjay Malhotra said in the first policy review since his appointment in December.
India’s government has forecast annual growth of 6.4% in the year ending in March, below the lower end of its initial projection, weighed by a weaker manufacturing sector and slower corporate investments. Growth is seen in a 6.3%-6.8% range in the next fiscal year as well.
Though retail inflation is still well above the medium-term target of 4%, it eased to a four-month low of 5.22% in December and is seen gradually declining towards the target in coming months, analysts said, giving policymakers more room to manoeuvre.
India’s benchmark 10-year bond yield was up four basis points at 6.69% after the announcement, while the rupee rose to 87.38. The benchmark equity indexes gained 0.2% each post the announcement.