The Reserve Bank of India (RBI) released the minutes from its February 2025 Monetary Policy Committee (MPC) meeting, revealing key insights into the decision to cut the repo rate by 25 basis points to 6.25%.
Here are the five key takeaways:
- Inflation Moderation: RBI Governor Sanjay Malhotra, in his maiden policy review, stated that the rate reduction was a “forward-looking” decision, considering inflation is moving towards the central bank’s 4% target. He highlighted the positive outlook for food inflation and the positive impact of the government’s budget proposals on price stability.
- Growth Concerns: While welcoming the inflation trend, the minutes also expressed concerns about excessive monetary restriction potentially dampening economic growth. External member Saugata Bhattacharya warned that the current policy rate might become “excessively restrictive,” posing a risk to growth impulses.
- Ambitious Rate Cuts: External member Nagesh Kumar advocated for a more aggressive 50 basis point cut, arguing that it would signal India’s commitment to reviving economic growth. He believed it would send a strong message to domestic and international investors.
- Liquidity Injection: Rajiv Ranjan, an RBI executive director and MPC member, emphasized the need to preserve high growth momentum in the medium term. He stressed the importance of using various policy instruments, including liquidity injection, to bolster growth.
- Balanced Approach: Despite the differing viewpoints, the MPC ultimately voted unanimously for the 25 basis point cut. This indicates a balanced approach, acknowledging both the need to control inflation and support economic growth.
The minutes provide valuable insights into the RBI’s thinking on monetary policy. While inflation remains a key concern, the MPC is clearly cognizant of the need to support economic growth. The 25 basis point cut is seen as a step in that direction, but further adjustments will likely depend on the evolving economic landscape.
