Why repo rate cut was an appropriate monetary policy response: Malhotra & co explain rationale behind key RBI decision
Sanjay Malhotra said that the recent reduction in the repo rate by 25 basis points to 6.25% is a timely and appropriate response, driven by inflation moving closer to the RBI's 4% target.
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The move, made during the Monetary Policy Committee (MPC) meeting held from February 5 to 7, marked the first rate cut in five years. Malhotra emphasised that given the current macroeconomic landscape, a lower policy rate is more fitting.
“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 stated in the MPC minutes released on Friday.
While the rate cut was implemented, the RBI maintained a neutral stance on monetary policy, offering flexibility to address future economic developments. In his first meeting as chair, Malhotra highlighted growing global uncertainties in trade and financial markets, along with risks from adverse weather events, which could impact both inflation and growth projections.
“By taking this logical course, monetary policy will be able to fulfill its mandate and play its part in the sustainable development of the Indian economy,” Malhotra added, emphasising the importance of keeping the economy on a steady path.
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