Repo Rate Cut Likely, Says RBI Governor

The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, recently made headlines by suggesting that current economic indicators hint at a possible repo rate cut. This announcement comes just days before the Monetary Policy Committee (MPC) is set to meet from December 3 to 5. Malhotra’s comments are significant as they indicate the RBI's responsiveness to changing economic conditions.

In an interview, Malhotra noted that macroeconomic data, particularly inflation rates, are favorable for a rate cut. He mentioned that during the MPC's previous meeting in October, there were indications of a potential rate reduction. Following that meeting, inflation, measured by the Consumer Price Index (CPI), fell to an all-time low of 0.25% in October from 1.44% in September. This decline in inflation is crucial as it provides the MPC with the space to consider reducing the repo rate further.

Since the beginning of the current easing cycle, the MPC has already reduced the repo rate by 100 basis points between February and June 2025. After maintaining the rate at 5.5% during the August and October policy reviews, many economists predict that the MPC may go ahead with a 25 basis points cut in December.

When asked about the approach to rate cuts, Malhotra explained that the RBI's primary mandate is to ensure price stability, with growth as a secondary objective. He likened the RBI's strategy to that of an all-rounder in cricket, focusing first on defense (price stability) before taking aggressive steps (growth). This balanced approach highlights the RBI's commitment to maintaining economic stability.

On the subject of the Indian rupee's performance, Malhotra stated that historically, the rupee depreciates by about 3-3.5% annually. The RBI aims to ensure that the rupee's movement remains smooth, which is vital for investor confidence and economic stability.

Furthermore, addressing concerns about the micro, small, and medium enterprises (MSME) sector, Malhotra expressed optimism about the asset quality within this segment. He stressed that the current state of the MSME sector remains satisfactory, and the RBI hopes this trend continues, supporting the backbone of India’s economy.

Overall, the upcoming MPC meeting is highly anticipated as it could lead to significant changes in monetary policy that affect borrowing costs and economic growth in India.