The Reserve Bank of India's Monetary Policy Committee on Friday reduced the benchmark lending rate for the first time in five years in an attempt to boost sluggish economic growth, comforted by easing inflation expectations. The committee's decision was announced by RBI Governor Sanjay Malhotra during his debut policy speech.
The MPC members include Nagesh Kumar, Saugata Bhattacharya, Ram Singh, Rajiv Ranjan, and M. Rajeshwar Rao.
Here are the key highlights from the RBI MPC meeting:
Repo Rate Cut
The Monetary Policy Committee decided to cut the repo rate by 25 basis points to 6.25%. The decision to reduce rate and continue with 'neutral' stance was unanimous.
Consequently, the standing deposit facility (SDF) rate stands adjusted to 6% and the marginal standing facility (MSF) rate and the bank rate stand adjusted to 6.5%.
The SDF is a mechanism that allows banks to deposit excess funds with the RBI. MSF is a window provided to banks to borrow overnight funds at a higher interest rate than the repo rate.
RBI's FY26 GDP Forecast
The Reserve Bank of India estimated that real GDP growth for fiscal 2026 will come at 6.7%.
First quarter growth is seen at 6.7% while the second quarter growth is pegged at 7%. The GDP growth for the third and fourth quarter was estimated at 6.5% and 6.5%, respectively.
"Fixed investment is expected to recover, supported by higher capacity utilisation levels, healthy balance sheets of financial institutions and corporates, and Government’s continued emphasis on capital expenditure," a statement said.
Inflation Seen Cooling
Core inflation is expected to rise but remain moderate, RBI Governor said while estimating the FY26 retail inflation to come at 4.2%, assuming normal monsoon. The RBI targets CPI at 4% with 2 percentage point tolerance on either side.
The RBI projects next fiscal's first quarter CPI at 4.5% and second quarter at 4%. The third and fourth quarter CPI is seen at 3.8% and 4.2%, respectively.
Rising global uncertainty, volatility in energy prices present upside risk to inflation. "Food inflation pressures, absent any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects," the statement said.
Liquidity Buffer Sufficient
The RBI will proactively take measures to ensure orderly liquidity conditions in the banking system, Governor Malhotra said, noting bank liquidity buffers are sufficient.
"System liquidity as per LAF turned into deficit in December and January due to advance tax payments. Capital outflows took place for various reasons," he said.
Forex operations by the RBI and pickup in currency in circulation also contributed to liquidity deficit, he said.
"Some banks are hesitant to on-lend in the uncollateralised call money market. Banks are passively parking funds with the RBI. We urge banks to trade among themselves in Call Money Market," he said.
Challenges Ahead
Global economic backdrop remains challenging and the global economy is growing below historical average, Governor Sanjay Malhotra said. The central bank has been employing all tools to face multi-pronged challenges.
"Excess volatility in global financial markets, continued uncertainties in global trade policies, pose risks to growth and inflation outlook. MPC to remain unambiguously focused to bringing inflation to target on durable basis," he said.
Also Read: Rupee Extends Sharp Gains Against US Dollar
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