MPC minutes: Frontloaded rate aimed to support growth, faster transmission

RBI's MPC voted 5:1 for a 50 bps rate cut in June to spur growth and boost credit amid benign inflation, with members supporting a shift to a neutral policy stance

The large cut of 50 basis points (bps) in policy repo rate during the June meeting of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) was aimed at faster transmission and lifting economic growth at a time when inflation outlook remained benign, MPC members said, according to the minutes released on Friday.

 

The six-member rate-setting panel voted 5:1 in favour of 50 bps rate cut to 5.5 per cent. While there was no voting on stance, as it was not required by the statute, all members favored change to “neutral” from “accommodative”.

 

RBI Governor Sanjay Malhotra highlighted the need for growth-supportive policies as heightened global uncertainties might prompt businesses to put their investment decisions on hold. He also highlighted that private sector investments have been weak despite high capacity utilisation and improved corporate balance sheets.

 

“…while growth remains steady, it is lower than our aspirations,” he said. On inflation, he said the projection was looking more benign than what was anticipated in the previous meeting in April.

 

“It is expected that the frontloaded rate action along with certainty on the liquidity front would send a clear signal to the economic agents, thereby supporting consumption and investment through lower cost of borrowing,” Malhotra said while explaining why he voted for 50 bps rate cut. 

 

 

On stance, he said: “It is important to keep in mind that the stance not only reflects the current macroeconomic conditions, but more importantly the outlook that goes into policy calculus.”

 

Deputy Governor Poonam Gupta, who attended her first MPC meeting, said though India was one of the fastest growing large economies, economic growth rate could be further accelerated based on the favourable demographics, conducive shift in regulatory policies, significant infrastructure enhancement, and leveraging on the macroeconomic stability achieved during the past decade.

 

She also agreed that private corporate capex remained tentative and confined to only certain pockets, and growth in 2024-25 (FY25) was mainly driven by a revival in private consumption.

 

Explaining the rationale behind the quantum of rate cut, Gupta said: “This should help in fostering policy certainty and faster transmission than a staggered rate cut, and in more effectively countering the challenges emanating from the global economy.”

 

On change in policy stance, she said it would mean any further actions should be contingent upon incoming data and the evolving global uncertainties. 

 

Another internal member, Rajiv Ranjan, said had the stance not changed to neutral after a big-sized rate cut, it would have misled financial markets about the scale and scope of further monetary policy easing.

 

“At the same time, it is to be noted that the shift in stance to neutral should not be confused to be a sign that the direction of monetary policy has changed,” Ranjan said. He also said this rate cut, coupled with several liquidity measures already undertaken and a CRR cut from September onwards, should help boost credit growth while protecting bank margins in a rate easing cycle.

 

External Member Saugata Bhattacharya, the only member who voted for a 25 bps rate cut, said the RBI’s assurance of continuing large, durable liquidity support was likely to have a more dominant effect on further transmission compared to a deep cut in the repo rate. The RBI has injected ₹9.5 trillion of durable liquidity into the banking system since January 2025.

 

“Recognising the prevailing uncertainties, I believe that a measured and cautious progress in policy easing is more appropriate at this time,” Bhattacharya said.

 

Commenting that the current situation warranted a frontloaded rate cut, external member Ram Singh argued that the post-pandemic average neutral interest rate was 1.65 per cent, hence, there was scope for about a 75 bps cut in the current cycle without heating the economy.

 

“Despite two rate cuts in February and April 2025, and call money rates dipping below the repo rate and, at times, even below the SDF (standing deposit facility) rate, credit growth has not picked up. The demand for loanable funds is lower than usual,” Singh said, adding that the realisation of 7-8% gross domestic product (GDP) growth would require a credit growth rate that was significantly higher than the current rate.

 

Another external member Nagesh Kumar, who talked about the possibility of 50 bps rate cut (though he voted for 25 bps cut in the April meeting), said: “I believe that the case for a 50 bps cut in the repo rate has become stronger.”

 

He said a heavier-than-expected cut in policy rate (along with the possible fiscal policy support) would send a clear message that India was serious about supporting economic growth momentum and would spare no effort in terms of policy interventions.

 

“A double dose of rate cut is likely to bring down lending rates significantly, helping to spur the investment and consumption of durable goods,” he added.

 

The next meeting of the MPC is scheduled from August 4 to 6, 2025.