MumbaiIn a recent statement, Reserve Bank of India (RBI) Governor Sanjay Malhotra emphasized that a reduction in policy rates could significantly enhance private consumption and foster a resurgence in corporate investments. This announcement comes in light of the minutes from the latest Monetary Policy Committee (MPC) meeting, which recommended a second consecutive rate cut. On April 9, the RBI reduced the repo rate by 25 basis points, bringing it down to 6%. Furthermore, the bank shifted its monetary policy stance from 'neutral' to 'accommodative,' indicating an openness to further cuts as economic conditions evolve.

Governor Malhotra noted that the current headline inflation rate stood at 3.6% in February 2025, with an average of 4% during the months of January and February. This decline in inflation rates, particularly food inflation, has played a crucial role in creating a disinflationary environment. While core inflationexcluding volatile food and fuel pricesdid see a slight increase to 4.1% in February from 3.6% in January, it remains relatively stable around the 4% threshold.

In the minutes released on Wednesday, Malhotra remarked, These developments suggest that underlying inflationary impulses in the economy are benign and well anchored. This sentiment was echoed by both external and internal members of the committee, who unanimously voted in favor of the rate cut and the shift in policy stance.

A significant concern for the MPC revolves around the rapidly changing global economic outlook. Professor Ram Singh, Director of the Delhi School of Economics, pointed out that recent trade tariff measures have intensified uncertainties that threaten economic stability across various regions. The global economic outlook has been changing fast for the last couple of months. These trade-related measures pose new headwinds for global growth and inflation, he noted, justifying his vote for a rate cut.

Another MPC member, Nagesh Kumar, Director and CEO of the Institute for Studies in Industrial Development, highlighted the necessity of stimulating private consumption and investments, especially amid these uncertain times. In times of uncertainty, there is a greater need for fiscal and monetary policies that can sustain the growth momentum, he asserted.

On a more positive note, Deputy Governor M Rajeshwar Rao reported that growth in aggregate deposits and bank credit remains in double digits, a sign of robust financial activity. Additionally, liquidity conditions have shown improvement in recent months, thanks to a range of measures implemented by the RBI aimed at ensuring stable market conditions. This improved liquidity is expected to facilitate smoother monetary transmission, thereby supporting economic growth.