Growth over inflation

• The Reserve Bank of India’s Monetary Policy Committee (MPC) unanimously decided to cut the benchmark repo rate from 6.50% to 6.25%.

• This move marks a significant departure from the previous bi-monthly review, where the committee opted for the status quo with a 4:2 vote.

• The move is based on the moderated inflation rate to 5.2% in December, above the RBI’s 4% target, and growth projections for 2024-25 slipping to a four-year low of 6.4%.

• RBI Governor Sanjay Malhotra highlighted global economic uncertainties, including stalled disinflation, diminishing prospects of rate cuts in the U.S., and a stronger dollar pressuring emerging markets and their currencies.

• The MPC justified its decision by citing expectations that price pressures will ease further, with inflation projected to average 4.2% in 2025-26 from 4.8% this year.

• The panel has signalled that weak economic growth is more pressing, especially given the second-quarter slump and limited signs of recovery since then.

• The RBI’s post-Budget policy stance suggests closer alignment with fiscal policy, heeding the government’s call for monetary and fiscal measures to work in tandem.