The Big Bang from the RBI

It’s a happy augury that the RBI is on the same page with the Ministry of Finance, for bolstering growth and investment by easing the cost of credit, writes Prof. Satya Narayan Misra

- Prof. Satya Narayan Misra

BELYING the expectation of a 25-basis-point cut in the repo rate, the Monetary Policy Committee, with a 5-1 majority, has opted for a 50-basis-point rate cut. This comes after two 25-basis-point rate cuts in February 2025 & April 2025, thereby bringing down the rate from 6.5 % to 5.5%.

This is in sharp contrast to the ostrich-like stand of the RBI in the recent past, when a majority led by the Governor did not relent in bringing down the rate from 6.5% in February 2023 till December 2024. This was baffling since inflation was moderating and growth was flagging, and two external members - Prof Varma and Prof Goyal - constantly dissented to pare the repo rate to spur growth. Quite clearly, the MPC and the RBI governor are now looking at both inflation targeting and spurring GDP growth as two wheels of a country’s economic chariot, which must move in tandem. The message of the Governor is that we have been able to tame the inflation from an average of 5.4% in 2023-24 to around 4.6% in 2024-25, with the expected inflation remaining around 4.5% in the year 2025-26. That seems to have prompted the decision of the Committee to switch from an ‘accommodative’ policy to a “neutral” policy, where further reduction in repo rates looks unlikely

Boosting Liquidity