MPC minutes: RBI Guv expects rate cut front-loading to support growth amid global tension

Mumbai: RBI Governor Sanjay Malhotra said front-loading of monetary policy rate action would give a clear signal and some certainty to the economic agents that the central bank is supportive of growth amid global tensions, MPC meeting minutes released on Friday said.

On June 6, the RBI governor-headed six-member panel reduced the benchmark short-term lending rate by 50 basis points, taking the total reduction to 100 bps in quick succession, besides a change in the policy stance to neutral from accommodative and liquidity infusion measures.

While five members voted for a 50 bps reduction in the repo rate during the three-day meeting (June 4-6), an external member of the panel, Saugata Bhattacharya, suggested a 25 bps cut.

Given a sharp reduction in inflation of about 3 percentage points over the past few months (6.2 in October 2024 to 3.2 in April 2025) and the projected reduction in annual average inflation by almost one percentage point from 4.6 to 3.7 per cent, Malhotra voted for a 50 bps rate cut, the minutes showed.

"It is expected that the front-loaded 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," he said.

On the change of monetary stance, he was of the opinion that a neutral stance would provide monetary policy with the necessary flexibility to cut, pause or hike policy rates in response to the evolving domestic and global economic conditions.

"This package of measures will provide some certainty in times of uncertainty and is expected to support growth," Malhotra added.

The MPC consists of three RBI officials -- Governor Malhotra, Deputy Governor Poonam Gupta and Executive Director Rajiv Ranjan, and three government-appointed nominees -- Nagesh Kumar, Saugata Bhattacharya and Ram Singh.

As per the minutes, Deputy Governor Gupta was also of the opinion that a 50 bps reduction in repo rate should help foster policy certainty and faster transmission than a staggered rate cut and more effectively counter the challenges emanating from the global economy.

She also supported a change in stance from accommodative to neutral.

"This means that any further actions should be contingent upon incoming data and the evolving global uncertainties," Gupta said.

Ranjan said from the perspective of inflation, growth, transmission, global and most importantly signalling and imparting certainty perspective, a 50 bps cut is apt at this juncture.

He further said having front-loaded the policy rate cut by 50 bps, the RBI would be left with less room for further downward adjustments in policy rates.

"There is a risk that a combination of 50 bps cut with an accommodative stance could mislead financial markets about the scale and scope of further monetary policy easing, repricing of which eventually could create unnecessary volatility," he said.

At the same time, the RBI Executive Director said it is to be noted that the shift in stance to neutral should not be confused with a sign that the direction of monetary policy has changed.

Ram Singh noted that assumptions about global growth and inflation are changing daily.

Given the high degree of uncertainty regarding growth and food inflation at home, caution is warranted in rate cuts, he said.

Singh further said the expectation of further rate cuts has likely delayed the materialisation of demand and investment decisions.

"In such an environment, given the market expectation of a 50-bps rate cut in this cycle, a staggered rate cut can further delay the materialisation of demand and investment decisions," he said.

Bhattacharya, the only MPC member advocating a 25 bps reduction, said recognising the prevailing uncertainties, a measured and cautious progress in policy easing is more appropriate at this time.

"Accordingly, I vote to cut the policy repo rate by 25 basis points to 5.75 per cent. I concur with the view to change the stance from accommodative to neutral," he said.

Kumar said since the February 2025 MPC, the RBI has started to support growth by cutting policy rates.

The repo rate has been cut by 50 basis points in two instalments, besides massive liquidity expansion (CRR cut). The monetary policy stance has also been changed to accommodative in April 2025.

However, the transmission of the monetary easing has been slow or moderate as reflected by the sticky deposit and lending rates (especially for the public sector banks), and credit growth has been moderate due to inefficiencies in the system, he noted.

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

The next MPC meeting is scheduled in August.