RBI Has Done Well To Focus On Its Core Competence: Price Stability

In times of extreme uncertainty, it is better for India's central bank to mark time. Wait for the fog to clear and then proceed

- MYTHILI BHUSNURMATH

On August 6, 2025, the Reserve Bank of India's (RBI) policy-rate-setting Monetary Policy Committee (MPC) decided, in common with major central banks—of the US, UK, China, and the EU—that discretion is the better part of valor. In times of extreme uncertainty, as at present, it is better to mark time. Wait for the tariff-induced fog to clear and then proceed. Hence, its unanimous decision to maintain status quo on the policy rate (5.5%) and keep its monetary policy stance 'neutral'.

This is welcome. Though the minutes of the last MPC meet in June had hinted as much—"After having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, monetary policy is left with very limited space to support growth"—many in the market expected to see another rate cut. The reason is that the MPC under Governor Sanjay Malhotra has shown a marked bias in favor of growth in the inflation-growth trade-off. It has cut rates at three successive meetings (in February, April, and June 2025), with its June meet smacking almost of adventurism—a 50 basis points (bps) reduction in the repo rate and a reduction in the cash reserve ratio by 100 bps!