RBI Publishes MPC Minutes: Reveals Reasons Behind 50 Bps Rate Cut, Concerns On Sluggish Credit Growth

The Reserve Bank of India (RBI) has released the minutes of its June 4-6, 2024, monetary policy committee (MPC) meeting. The minutes provide minute details on why the RBI cut the policy repo rate by 50 basis points (bps) —from 6 per cent to 5.5 per cent—and changed its policy stance to "neutral" from "accommodative".

This was based on declining inflation, the necessity to nurture economic growth, and the worldwide uncertainties in terms of influencing trade and investment, according to the minutes of the meeting. Most members concurred that a deeper rate cut would be a big message to enhance demand and investment within the Indian economy.

Inflation Decreased, Providing RBI With Space to Manoeuvre

Inflation has been a cause of worry for the RBI for the last two years. Nevertheless, recent numbers indicated a sharp decline in prices. 

The consumer price index (CPI) inflation hit 3.2 per cent in April 2025, the lowest in almost six years. The RBI now predicts that inflation will be at 3.70 per cent in 2025–26, down from its previous estimate of 4 per cent.

MPC members also observed that food inflation has declined for six consecutive months. 

A favourable Rabi crop, timely and robust monsoon predictions, and stable global commodity prices have contributed to capping food and fuel prices. Core inflation (excluding food and fuel) was also steady despite some upward pressure from increasing gold prices.

With inflation expected to remain well within the RBI’s comfort zone of 4 per cent (plus or minus 2 per cent), the committee felt confident that a larger rate cut would not risk price stability.

Growth Steady, But Not Strong Enough

India's real gross domestic product (GDP) increased by 7.40 per cent during the fourth quarter of 2024–25 and 6.50 per cent for the entire financial year. Although this is an improvement, the RBI feels that much more has to be done to bring about long-term growth at a higher level.

The MPC noted that the recovery is uneven. Rural spending has picked up, supported by improving wages and good harvests. But private investment, urban demand, and industrial activity continue to lag. Corporate investments are still guarded even with high capacity utilisation and improving balance sheets.

The MPC members concurred that lower interest rates would ease the cost of borrowing, induce people to borrow and spend, and induce business to invest.

Sluggish Credit Growth is a Worry

One of the major points raised in the minutes was the sluggish implications of rate reductions. 

Despite two previous reductions in February and April, credit growth continues to be sluggish at a mere 9.80 per cent, the lowest in recent quarters. Most banks, particularly public sector banks, have been tardy in cutting the lending rates.

The minutes also record that although the RBI has pumped stable liquidity into the banking system and reduced policy rates, loan demand remains subdued. Borrowers are awaiting improved conditions or further rate cuts, and banks are afraid to lend in the absence of firmer signals of economic activity.

Few MPC members thought that a more aggressive 50 bps reduction, rather than a lesser 25 bps cut might accelerate transmission and yield faster outcomes.

Policy Stance Shifted to 'Neutral'

In addition to the rate cut, the RBI also shifted its policy stance to "neutral" from "accommodative". This implies that the central bank is neither leaning towards additional cuts nor hikes at present, and will determine actions in the future based on the performance of the economy.

The minutes clarify that following consecutive rate cuts of 100 bps, the policy space is currently constrained. Neutral positioning would provide room for maneuvering to meet evolving conditions, for instance, shocks from abroad or surprise inflation.

Global Outlook Remains Uncertain

The MPC minutes also touched upon global risks. These are persistent geopolitical tensions, uncertain trade policies, and anxiety regarding a global slowdown. The World Trade Organization predicts international trade to contract by 1.50 per cent in 2025, while Chinese affordable products may inundate developing economies, such as India.

The next MPC meeting will be held on August 4–6, 2025.