A 'placeholder' policy

In the first week of December, Reserve Bank of India (RBI) Governor Sanjay Malhotra played Santa Claus and brought an early Christmas.

- TAMAL BANDYOPADHYAY

The central bank cut the policy rate by 25 basis points (bps) and committed to injecting substantial liquidity into the system through the so-called open-market operations (OMO) and dollar-rupee buy-sell swaps.

After that, the last policy of the current financial year — the first one after the Union Budget — was a nonevent on Friday. And rightly so. As they say, “if it ain't broke, don’t fix it”. We can call it a “placeholder policy”.

At the end of the three-day meeting of the Monetary Policy Committee (MPC), the Indian central bank's rate-setting body, the policy rate remained unchanged at 5.25 per cent, and the stance stayed “neutral”.

The decision for the status quo on the policy rate was unanimous. As for the stance, one of the six MPC members, Ram Singh, held a different view, favouring a change to “accommodative”.

The status quo on both rate and stance was in sync with market expectations. Still, the 10-year bond yield rose from 6.65 per cent to 6.74 per cent, as some market participants expected liquidity measures. There was a demand even for a cut in banks’ cash reserve ratio.

The RBI refrained from doing so. What's the hurry? Daily average system liquidity has been a surplus of around ₹70,000 crore since the last MPC meeting in the first week of December 2025. Right now, the surplus is at least ₹2 trillion.