Falling inflation, uneven growth led to RBI front-loading rate cut, show Monetary Policy Committee minutes
MUMBAI: The unconventional 50 bps repo rate cut, taking the key rate to a low of 5.5%, along with a 100 bps reduction in the cash reserve ratio in a staggered manner announced on June 6 are part of the central bank's efforts to prop up growth, which has lost some of its momentum due to the ongoing trade war concerns. The cut was also enabled by the six-member Monetary Policy Committee's unanimous benign outlook on inflation, given the falling food prices and the forecast for a normal monsoon season, show the minutes of the June 4-6 meeting of the panel, released by the RBI on Friday.
In a surprise move, the MPC slashed the key repo by 50 bps—the only time it had done such a move in recent years was the 75 bps reduction in May 2020 in the middle of the pandemic—and also slashed the CRR to 3%. The package is aimed at offering stability in volatile global conditions and aid the country's growth momentum in the near term. The MPC also changed the stance to neutral from accommodative, which was announced in the April policy.
The jumbo rate cut came after two successive rate cuts of 25 bps each in February and April.
'This package of measures will provide some certainty in the times of uncertainty and is expected to support growth,' said governor Sanjay Malhotra, according to the MPC minutes. Since the past three reviews, the rates are down a full 100 bps.
Inflation has cooled faster than expected, with the April consumer price index print falling to a near six-year low of 3.2%, giving the central bank space to act. That the May CPI print has fallen to a 76-month low of 2.82% is another reason for cheering the RBI forecast.
While headline inflation is expected to undershoot the RBI's 4% target and average 3.7% in FY26—down from 4% earlier, growth remains below the aspirational levels—a reason why the MPC has not changed its GDP forecast for the year.
'While growth remains steady, it is lower than our aspirations,' Malhotra said. GDP grew 6.5% in FY25, with a strong 7.4% showing in the March quarter.
'Since the April policy, the incoming data point to more than anticipated softening of inflation. The Reserve Bank's anti-inflationary policy stance in the last two years, supply side measures by the government and a good agricultural season seem to have helped gain control over inflation. This has given flexibility and opportunity for monetary policy to support growth,' the member from the RBI side Rajiv Ranjan said.
The youngest deputy governor Poonam Gupta, who is also in charge of the monetary policy department, not only backed a rate cut but batted for front loading it, saying, 'There is also merit in front-loading these cuts, as given the positive data prints, the issue arises of how much support can be provided, and at what pace.'
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Hindu
2 hours ago
- The Hindu
Industries demand reduction in power tariff as consumer price index registers a decline
With the Consumer Price Index (CPI) for April 2025 declining compared with last April, industries in Coimbatore are demanding that the Tamil Nadu Power Distribution Corporation (TNPDCL) retain the electricity tariff for industries at the same level or reduce it. Based on the multi-year tariff revision introduced in 2022, industries will see 6% increase in power tariff from July 1. The Tamil Nadu Electricity Regulatory Commission (TNERC) order says that the control period under the multi-year tariff frame work shall be five years. The year preceding the first year of the control period shall be the base year where the Commission desires to fix multi year tariff. A formula based on Consumers' Price lndex (wholesale Price lndex (or) a quantum (Percentage / value) required to meet the Aggregate Revenue Requirement of the licensee shall be prescribed. Industry sources here said the All India Consumer Price Index for April 2025 is 3.48 % as against 4.83 % in April 2024. Since there is a decline in the CPI, the Commission and the TNPDCL should not implement the annual 6 % annual hike in tariff this year. They urged the TNERC also to issue orders to either retain the tariff or reduce it. Electricity consultants said if the CPI has reduced in April this year, the TNPDCL and the TNERC should not hike the tariff from July 1.
The Hindu
2 hours ago
- The Hindu
Banks must act with social commitment, says MP
MP for Mysuru Yaduveer Krishnadatta Chamaraja Wadiyar on Saturday said banks should not simply chase profits but also operate with a strong sense of social responsibility. Presiding over the District-Level Advisory and Progress Review Committee meeting in Madikeri, Mr. Yaduveer called upon banks to extend lending support to farmers, small and medium enterprises, traders, and cottage industries. 'Inclusive development is the need of the hour, and banks must play an important role in ensuring it,' he said. He urged banks to strictly adhere to Central government guidelines and provide greater assistance to priority sectors such as agriculture, horticulture, animal husbandry, and fisheries. 'Banks should function as partners in realising Prime Minister Narendra Modi's vision of inclusive and sustainable development,' Mr. Yaduveer said. Stressing on the importance of language and communication, he said staff of nationalised banks should learn Kannada to connect better with local communities. 'It not only helps in addressing grievances efficiently but also strengthens public trust,' he added. RBI Assistant General Manager Suraj said that an online Kannada learning initiative for bank employees has already been launched. Presenting the overview of bank performance in the district during 2024-25, Lead Bank Manager Gangadhar Nayak said banks achieved 99% of the agricultural loan disbursement target, 97% in small-scale industries, 100% in educational loans, 74% in the housing sector, 104% in other priority sectors, 98% overall in the priority sector, and 117% in non-priority sector lending. The Annual District Credit Plan target for the year 2025–26 has been pegged at ₹7,680.10 crore. Sector-wise allocations include ₹3,477.86 crore for crop loans, ₹1,388.42 crore for small and medium industries, ₹33.27 crore for educational loans, ₹59.46 crore for the housing sector, and ₹115.53 crore for other priority sectors — totalling ₹5,074.54 crore for all priority sectors. A sum of ₹2,606.56 crore has been earmarked for non-priority sectors, he said. Zilla Panchayat Chief Executive Officer Anand Prakash Meena, Additional Deputy Commissioner R. Aishwarya, and officials from various departments and corporations attended the meeting.
India Gazette
2 hours ago
- India Gazette
LIC Housing Finance reduces interest rate in line with recent RBI repo rate cut
New Delhi [India], June 21 (ANI): LIC Housing Finance has reduced its rate of interest on new home loans by 50 basis points, in line with the similar degree of repo rate cut by yje Reserve Bank of India (RBI). With this revision, interest rates on new home loan sanctions will now start from 7.50 per cent, effective June 19, 2025, coinciding with the company's 36th Foundation Day, it said in a statement Saturday. This move by LIC Housing Finance is aimed at passing on the benefit to new home loan customers to encourage home ownership and improve affordability. The recent frontloaded repo rate cut by the RBI was understandably aimed at boosting economy, which has relatively moderated. The policy rate cut and the subsequent decline in interest rates by banks will create demand for fresh credit, giving fresh life to the economy. After a total of 100 basis point repo rate reduction since February 2025, the scope for more rate cuts is limited, RBI Governor Sanjay Malhotra had hinted after the latest monetary policy meeting. Tribhuwan Adhikari, MD and CEO, LIC Housing Finance said 'As we mark our 36th Foundation Day, we remain committed to making home ownership more accessible. The rate cut is a continuation of our effort to align with RBI's policy direction and pass on the benefits to our customers.' 'We are confident this move will provide an added boost to housing demand, especially in the affordable and mid-income segments, where aspirations of owning a home are closely tied to interest rate dynamics,' the MD and CEO added. LIC Housing Finance Ltd is a leading housing finance company having networks of offices across India and a representative office in Dubai. In addition, the Company also distributes its products through branches of its subsidiary LIC HFL Financial Services Ltd. LIC Housing Finance Ltd was promoted by Life Insurance Corporation in 1989, and a public issue was made in 1994. (ANI)
