After the rate cut

The global environment will pose risks

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The six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) in its last meeting of the financial year — the first after Governor Sanjay Malhotra took office — unanimously decided to reduce the policy repo rate by 25 basis points last week to 6.25 per cent. The rate decision, driven by lower inflation projections, was widely anticipated by market participants.

The RBI expects the consumer price index-based inflation rate to average 4.2 per cent in 2025-26 — assuming a normal monsoon — compared to the projection of 4.8 per cent this financial year. Since monetary policy should be forward-looking and the inflation projection is close to the legally mandated target while growth has slowed, it made sense to make the monetary policy less restrictive.