RBI MPC minutes: Members see need to support growth on benign inflation

The MPC decided to cut the policy repo rate by 25 basis points earlier this month, after reducing the rate by a similar magnitude in the February meeting

Members of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC), which met on April 7-9, see inflation remaining benign.

 

According to the minutes of the meeting released by the RBI on Wednesday, the policy needs to be supportive of growth.

 

The MPC decided to cut the policy repo rate by 25 basis points (bps) earlier this month, after reducing the rate by a similar amount in the February meeting. The stance of the policy was changed to accommodative from neutral in this month’s meeting.

 

“When consumer price index (CPI)-based inflation is decisively around its target rate of 4 per cent and growth is still moderate and recovering, monetary policy needs to nurture domestic demand impulses to further increase the growth momentum,” RBI governor Sanjay Malhotra said while citing the rationale for a rate cut.

 

 

He added that a rate cut will bolster private consumption and support a revival in private corporate investment activity.

 

“Overall, favourable factors for the inflation outlook outweigh those with possible adverse impact and should drive further disinflation in the headline CPI. It is expected that inflation will be well aligned to the target during the current financial year,” Malhotra said. He also said, “Although even at 6.5 per cent growth, India would continue to be the fastest growing major economy, this is lower than what we aspire for.”

 

On the global trade war, Malhotra said the Indian economy remains relatively less exposed and better placed to withstand such spillovers with its growth driven largely by domestic demand. 

 

He added, “Nevertheless, we are not immune to the aftershocks and ripple effects associated with global disturbances. There may also be some positive spin-off to the Indian economy from the likely softening of crude oil and commodity prices and relative tariff advantage.”

 

RBI has projected the CPI inflation for the financial year 2025-26 to be 4 per cent. GDP growth was projected at 6.5 per cent.

 

“Assessing the overall situation, we find that while inflation outlook remains benign, GDP growth could face a downward pressure,” deputy governor M Rajeshwar Rao remarked at the meeting. Commenting that the current environment is mired, Rao said while the exact impact of US tariffs on India is not certain, with the US being India’s largest export destination, it could weigh on trade, financial markets, and domestic economic activity through both direct and indirect channels.

 

Highlighting global uncertainties due to trade wars, internal member Rajiv Ranjan said inflation has entered a decisive softening phase with risks to growth outweighing those of inflation.

 

Ranjan said there seems to be greater conviction of inflation remaining aligned with the 4 per cent target during the current financial year. He observed that growth is lower than aspirations and needs policy support amid a challenging global environment. On the accommodative stance, he said, it is consistent with the large liquidity infusion to aid policy transmission in this easing cycle.

 

External member of the MPC Ram Singh also seemed comfortable on the price outlook as he said inflation levels and volatility are expected to remain within the RBI's comfort band. “With growth below potential and a benign inflation outlook, the MPC should support growth by cutting the repo rate,” Singh said.

 

Observing that inflation in India may remain moderate over FY26, another external member Saugata Bhattacharya said, “Forecasted moderate inflation path opens up more space for policy easing.”

 

Commenting that India’s FY26 external balance may also become a matter of concern, Bhattacharya emphasised on the nature of incoming data to future monetary policy decisions.

 

“The elevated uncertainty at present regarding the evolving economic outlook, which is likely to continue into the near future, warrants that policy decisions be taken considering incoming data on a ‘meeting-by-meeting’ basis. However, it was clarified that the change in stance signals only that ‘a rate hike is off the table.’ An accommodative stance remains consistent with a pause, should macro-financial conditions necessitate,” said Bhattacharya.

 

Nagesh Kumar, another external member of the monetary panel, emphasised that there is a greater need for stimulating private consumption and investments through fiscal and monetary policy to sustain the growth momentum.

 

Kumar added that the headline CPI will remain within the target range of 4 per cent, which provides headroom for adopting a more accommodative monetary policy.