Room opened for rate cut, time not opportune: RBI Guv

Despite the benign inflation outlook opening up room for a repo rate cut, the timing is not appropriate to reduce the key rate at present, since it would not produce the expected results, Reserve Bank of India governor Sanjay Malhotra wrote in the minutes of the monetary policy committee (MPC) meeting. The minutes were released on Wednesday. The six-member MPC unanimously voted to maintain a pause in the policy repo rate, citing external uncertainties linked to US trade and tariffs, and the ongoing transmission of earlier monetary measures. The committee also retained the policy’s neutral stance, although two members— Nagesh Kumar and Ram Singh — favoured a shift to an the accommodative stance. Members flagged recent US tariff actions, including steep duties on Indian goods and visa fee hikes, as potential headwinds for MSMEs and export-driven sectors. Despite these concerns, the MPC acknowledged the resilience of India’s economy, supported by a strong monsoon, buoyant services, and improving manufacturing indicators. “The current macroeconomic conditions and the outlook have opened up policy space for further supporting growth,” said RBI governor Sanjay Malhotra. However, he emphasised the need for prudence, stating, “The impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out. The trade-related uncertainties are also unfolding.” “The cumulative impact of fiscal and monetary measures is yet to be realised fully. Tariff-related uncertainties are still evolving. There is elevated uncertainty on the external front. In view of these factors, even though there is policy space to further cut the policy rate, I feel this is not the opportune time for the same as it will not have the desirable impact,” the minutes quoted Malhotra as saying. Deputy governor Poonam Gupta voted to maintain the status quo on rates, noting, “Global uncertainties are evolving at a very fast pace, and depleting policy ammunition at this point does not seem warranted, until there is more clarity on how the global policy environment will unfold henceforth.” While the MPC opted for a pause, the tone of the discussions hinted at a readiness to act if conditions warrant. “We may like to signal the readiness of monetary policy to support industry, investments and growth,” said MPC member Nagesh Kumar, who shifted his stance from neutral to accommodative. Echoing this sentiment, Professor Ram Singh said, “The prevailing inflation rate is too low; it is neither conducive for businesses nor for public finances… making a case for an additional growth-supportive interest rate cut.” Despite believing that the case for another rate cut has strengthened, he voted for a pause, citing the ongoing impact of fiscal measures and earlier monetary easing, alongside external uncertainties. Economist and MPC member Saugata Bhattacharya agreed that while inflation moderation opens space for easing, the cumulative effects of prior stimulus and unfolding trade uncertainties warrant caution. “The impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out. A moderation in the inflation rate is not a compelling reason, at this point, to cut the policy rate,” he said. Executive director and newly-appointed MPC member Indranil Bhattacharya noted, “In a world characterised by geopolitical strife… the Indian economy has demonstrated strength and resilience.” He adopted a wait-and-watch approach, observing that economic activity remains buoyant. Bhattacharya stressed that “messaging has to be done with effective communication as errors can be costly.” He cautioned that any shift to an accommodative stance could be interpreted as an explicit forward guidance on the future interest rate path, an approach he believes should be avoided. The RBI is walking a fine line, balancing growth support with caution amid an uncertain global landscape. “Rapidly-evolving developments and the foggy outlook suggest that we exercise caution and take a view for each policy as per the then prevailing macroeconomic conditions and outlook,” Malhotra said.