Monetary Policy Needs To Be Accommodative: RBI Governor Sanjay Malhotra

With inflation decisively around 4 per cent target, the monetary policy needs to nurture demand impulses to boost growth amid uncertain global environment, opined the members of the Reserve Bank's rate setting panel while delivering another 25 bps rate cut earlier this months, showed minutes of the meeting released on Wednesday.

Governor Sanjay Malhotra-headed Monetary Policy Committee (MPC) had reduced the short-term lending rate by 25 basis points to 6 per cent on April 9. A similar reduction was done in February.

RBI also changed its monetary stance to 'accommodative' from 'neutral'.

"When consumer price 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. This is specially so amidst an uncertain global environment, which has amplified downside risks to growth," said the minutes of the MPC meeting released by the RBI on Wednesday.

Malhotra had said it will bolster private consumption and support a revival in private corporate investment activity.

"Going forward too, considering the evolving growth-inflation trajectories, monetary policy needs to be accommodative," he said.

The next meeting of the MPC, consisting of three RBI officials and three members appointed by the government, is scheduled from June 4-6, 2025.

RBI Deputy Governor and MPC member M Rajeshwar Rao opined that the current environment was mired with unprecedented global uncertainties, which calls for constant watchfulness and monitoring, as well as promptness in policy actions to deal with any emerging risk to the growth-inflation balance.

"Assessing the overall situation, we find that while inflation outlook remains benign, GDP growth could face a downward pressure. The recent waves of global uncertainty demand decisive policy support to growth," he said, as per the minutes.

RBI's Executive Director and MPC member Rajiv Ranjan said while growth is still reasonable, it is lower than our aspirations and needs policy impetus amidst a challenging global environment.

"...India’s forte is its higher growth potential supported by strong macroeconomic fundamentals, and accordingly, we need to continue to accord higher weight to growth in our policy setting amidst benign inflation outlook with reasonable degree of definiteness," he said.

The three external MPC members are: Nagesh Kumar, Saugata Bhattacharya and Ram Singh.

According to the minutes, Kumar, who like others voted for 25 bps reduction in repo rate, said India needs to take action to protect the domestic industry from the dumping of Chinese goods, especially in labour-intensive consumer goods like garments, imitation jewellery, non-leather footwear, toys, and furniture where it is already rampant.

In addition, the ongoing FTA negotiations with the EU and UK need to be concluded quickly to preserve market access for Indian products in these markets, he said.

Bhattacharya said the projected moderate inflation path opens up more space for “good news” policy easing.

Moreover, the present resilience of economic activity does not as yet necessitate additional “bad news” actions associated with prospects of a significant growth slowdown.

Ram Singh was of the opinion that overall, the inflation outlook has improved decisively, and confidence in a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon has improved.

On the other hand, growth is still on a recovery path after an underwhelming performance in the first half of 2024-25.

"Under these economic conditions, with growth below potential and a benign inflation outlook, the MPC should support growth by cutting the repo rate," Singh said.