RBI Governor Hints at Possible Repo Rate Cut
The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, recently suggested that current macroeconomic indicators point to a potential cut in the repo rate. This statement comes just ahead of the Monetary Policy Committee (MPC) meeting scheduled for December 3 to 5. As inflation drops to a record low of 0.25% in October, the discussions around monetary policy are becoming increasingly relevant.
Malhotra noted that in the previous MPC meeting in October, it was mentioned that there was room for further rate cuts. The subsequent economic data released has not indicated any worsening of conditions that would reduce this possibility. Hence, he confidently stated that there is indeed scope for a rate reduction, but the final decision will be made by the MPC during their upcoming meeting.
During the current easing cycle, the MPC has already reduced the repo rate by 100 basis points between February and June 2025. After maintaining the repo rate at 5.5% in recent months, economists are now forecasting a possible cut of 25 basis points in December. This potential adjustment could provide much-needed relief to borrowers and stimulate economic growth.
When questioned about the future of aggressive rate cuts, Malhotra emphasized the RBI's dual mandate of ensuring price stability and promoting growth. He likened the RBI's strategy to that of an all-rounder in cricket, prioritizing defense (price stability) while remaining prepared to attack (growth) when necessary. This balanced approach aims to ensure sustainable economic growth while maintaining a stable price level.
In response to inquiries about the Indian rupee's performance, Malhotra remarked that historically, the rupee depreciates by 3-3.5% annually. The RBI aims to ensure that the rupee's movements remain smooth, without causing shocks to the economy.
Lastly, addressing concerns regarding the Micro, Small, and Medium Enterprises (MSME) sector, Malhotra reassured that asset quality remains satisfactory, and he remains hopeful that the sector will continue to perform well. This positive outlook reflects the RBI's commitment to supporting all facets of the economy in these challenging times.
