Monetary Policy To Push Growth

With the rate cut, RBI has sent a strong message to markets, both domestic and foreign, about India's future economic prospects

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If there was any misconception that India's economic policy establishment had become complacent about the economy's growth prospects after a stellar 7.4% GDP growth in the March quarter, the latest Monetary Policy Committee's (MPC) decision has quelled it. Price stability is only a necessary and not a sufficient condition to ensure growth, RBI Governor Sanjay Malhotra said unequivocally in his statement released after the MPC meeting on Friday. While MPC has retained the GDP growth forecast for 2025-26 at 6.5%, which is what it was in its April resolution, it has administered a 50-basis point reduction in its policy rate. This is double what markets were expecting — and is a strong signal that the economy needs a booster dose of strong medicine, not an incremental one.