Balanced Policy That Did Not Yield a Rate Cut

The surprise was RBI's 4.9% inflation projection for the first quarter of FY27

- JAYESH MEHTA

The Reserve Bank of India's latest monetary policy decision was broadly balanced. RBI's monetary policy committee (MPC) clearly outlined both the upside and downside, signaling a nuanced and carefully considered approach. Although the majority did not expect any rate cut—particularly after the recent large reduction and given the neutral stance amid global uncertainties—I was still hoping for a cut.

Although front-loading of the rate action has already occurred, if conditions remain benign, there's no harm in continuing support. The recent cuts need not preclude further action if the macro environment justifies it.

As for the "neutral" stance, post 2013-14, markets have tended to interpret it chiefly as a signal on liquidity, whereas earlier, it reflected flexibility to act both ways—accommodative (a cut) or neutral (open to either direction depending on data). RBI governor Sanjay Malhotra reiterated this flexible interpretation in a recent interview, clarifying that the "neutral stance" wasn't a constraint.