RBI governor considered benign inflation outlook for rate cut, show MPC minutes

MUMBAI: Reserve Bank of India (RBI) governor Sanjay Malhotra considered the benign inflation outlook, headline as well as core, to vote for a 25-bps rate cut at the December Monetary Policy Committee (MPC) meeting, minutes of the MPC meeting showed.

“Considering the benign inflation outlook — headline as well as core — real interest rates need to be lower. Therefore, I vote for a 25-bps rate cut. This will also stimulate demand and be growth-supportive”, the statement from the RBI Governor said in the minutes. “Moreover, I am in favour of retaining the neutral stance which gives the requisite flexibility to remain data-dependent and act according to the evolving macroeconomic conditions and outlook”, he said.

“Headline inflation in H1:2025-26 turned out to be much softer than anticipated due to the generalised moderation in price pressures, particularly the sharp decline in food prices. Moreover, core inflation — CPI headline excluding food and fuel — remained rangebound notwithstanding the continued increase in prices of precious metals. In fact, core inflation excluding precious metals, has been low for a long time”, he highlighted.

“Since the beginning of 2024, it has been in the range of 2.5 to 3.4 per cent. Going ahead, good agricultural production, low food prices and exceptionally benign international commodity price outlook suggest that headline inflation for the full year is likely to be around 2 pc, half of what was projected at the beginning of the year”, he said.

Headline inflation is projected to be close to the 4 per cent target in H1:2026-27. Excluding precious metals, inflation is likely to be much lower, as has been the trend since the beginning of 2024, the governor mentioned. “Thus, demand pressures, as evident from low core inflation (excluding precious metals), are minimal and projected to remain low in the next three quarters”, he said.

Speaking on the global growth, Governor Malhotra said it remained resilient during the year but persisting risks from geopolitical and trade tensions, policy uncertainty, and economic fragmentation continue to temper its outlook.

“Receding inflation pressures, although above targets in some advanced economies, open up the scope for more accommodative policies in the ensuing months. Financial market sentiments remain circumspect, conditioned by lingering uncertainties on divergent policy paths of major central banks, and regional disparities in macroeconomic outcomes”, he said. (ANI)