 "Monetary Policy Committee, Monetary Policy")
The meeting of the monetary policy committee (MPC) of the Reserve Bank of India (RBI) started on Monday to set the policy rate and decide on other instruments amid fears of high inflation and low growth in the major economies of the world due to the imposition of tariffs by the Donald Trump administration in the US.
The committee is widely expected to cut the repo rate in line with its previous decision, which perhaps reflected the change of guard at the RBI even though the decisions are taken on a majority vote of the six-member panel.
The Economic Survey has projected economic growth at 6.3-6.8 per cent for FY26 against 6.5 per cent for FY25 as pegged by second advance estimates. The MPC at its February policy projected economic growth at 6.7 per cent for the current financial year.
However, much has changed since then with Trump’s decision on tariffs. The finance ministry’s latest monthly economic review cautioned of considerable risks to India’s growth trajectory owing to geopolitical tensions and trade policy uncertainties. The evidence of uncertainty was manifested on Monday when the Sensex fell 2.95 per cent and the rupee fell to settle at 85.84 against the US dollar.
India’s consumer food price inflation witnessed a topsy-turvy ride in FY25. Food inflation was 8.7 per cent in April 2024, which rose to 9.36 per cent in June 2024. It dropped to 5.66 per cent in August 2024, before rising again. Since January 2025, food inflation has remained below 6 per cent, with figures of 3.75 per cent in February this year.
In contrast, India’s consumer non-food price inflation has crept up in the last financial year from 2.28 per cent in April, 2024 to 3.51 per cent in February this year. However, non-food inflation levels continue to be well below the 4 per cent mark which is the level at which the MPC is supposed to keep the rate of price rise.
As such, inflation is well under control as of now. However, the future is uncertain, making the monetary policy decision a complicated exercise this time.
Liquidity in the banking system turned surplus for the first time on March 29 after more than three months, primarily driven by aggressive fund injections by the RBI. However, the average liquidity in fourth quarter of FY25 remained at a deficit of ₹1.65 trillion, which was the largest liquidity deficit since the pandemic. The MPC will have to strike a balance between price levels and economic growth while ensuring that productive sectors of the economy are not short of funds.
This will involve its assessment of the future trends of key economic parameters.
