Mumbai: RBI Governor Sanjay Malhotra on Friday announced that the Monetary Policy Committee has unanimously decided to retain the policy repo rate at 5.25 per cent and continue with a neutral monetary policy stance.
The RBI Governor said that the decision to maintain the status quo in the policy rate had been taken after careful consideration of the macroeconomic conditions and the outlook for the economy ahead.
He said that since the last monetary policy meeting in December, global headwinds have intensified, but the trade deals signed by the government augur well for the economy going ahead.
Malhotra further stated that the RBI has decided to stick to a “neutral policy stance”.
A neutral stance requires neither stimulation nor curbs on liquidity as it strikes a fine balance between controlling inflation without hurting growth. The RBI has been sticking to the neutral stance as it was waiting for the earlier monetary policy easing to still play out, and the unfolding of trade-related implications.
Malhotra said the inflation level was under control and below the RBI tolerance band. The inflation outlook was benign, and the RBI’s projection for CPI inflation has been revised for Q1 and Q2 of the 2026-27 to 4 per cent and 4.2 per cent, respectively. He said the minor increase in the projection was due to the expected increase in the prices of precious metals. However, the underlying inflation is expected to be well within the tolerance level.
The RBI Governor also said that the growth outlook for the Indian economy is favourable and expected to be driven by domestic factors.
The Monetary Policy Committee had reduced the repo rate by 25 basis points to 5.25 per cent from 5.5 per cent in the December review to spur growth in the economy.
The Monetary Policy Committee, chaired by the RBI Governor, had left the repo rate unchanged in the reviews held in August and October to keep inflation in check.
Before that, the RBI reduced the repo rate by 100 bps from 6.5 per cent to 5.5 per cent in quick succession between February and June, and the transmission to the economy was still working out.
A lower policy rate and more liquidity with banks lead to a decline in interest rates on bank loans, which makes borrowing easier for consumers as well as businesses, resulting in more consumption and investments in the economy, leading to higher growth.
However, the effectiveness of the rate cut hinges on how quickly and efficiently commercial banks pass on the benefits to borrowers.
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Photo source: RBI
–IANS
