Reserve Bank of India (RBI) Governor Sanjay Malhotra (file photo)
| Photo Credit:
FRANCIS MASCARENHAS
The war against inflation is a continuing one, with the Reserve Bank of India’s rate-setting monetary policy committee (MPC) never taking its eyes off it, according to Governor Sanjay Malhotra.
He observed that the change in the monetary policy stance to neutral in the June bi-monthly policy review along with the 50 basis points repo rate cut indicates that the bar for further easing is higher than it would have been if the stance was accommodative.
The Governor emphasised that RBI has enough ammunition in its armoury, including the cash reserve ratio (CRR), to chart out the right monetary policy and manage the trade-off between growth and inflation.
“We never take our eyes off inflation. Our primary objective is to maintain price stability and we have mentioned that it is not inconsistent with other objective that we have, of growth because that is prerequisite,” he said.
“History tells us… wherever there has been high inflation, growth has suffered. So, this continues to be our number one challenge. It’s not a permanent victory… the war against inflation continues,” Malhotra said in a fireside chat hosted by a business publication.
‘neutral stance gives flexibility’
The RBI’s rate setting panel (monetary policy committee) has cut the policy repo rate thrice since February — 25 basis points (bps) each in February and April bi-monthly monetary policy review and by 50 bps in June. The repo rate is currently at 5.50 per cent against 6.50 per cent before the February rate cut.
The MPC also changed the monetary policy stance to “neutral” from “accommodative” in the June policy review.
The Governor emphasised that the “neutral” stance allows MPC the flexibility to move in either direction or even to pause. The committee will be looking at the data that comes in.
While headline inflation, as measured by year-on-year changes in the all-India consumer price index (CPI), declined to 2.1 per cent in June 2025 (the lowest since January 2019) from 2.8 per cent in May, Malhotra underscored that monetary policy is forward looking even as he flagged RBI’s Q4FY26 inflation projection at 4.4 per cent.
So, more than the current data, it will be the data relating to the inflation-growth outlook (6 to 9 months, 12 months) that MPC will be parsing.
He noted that even though headline inflation for FY26 is projected at 3.7%, the Q4 estimate is at 4.4%, which may be revised downwards given the fact that the numbers that are coming in are lower.
The MPC has tried to deal with the geo-political tensions and tariff policy uncertainties by bringing in some certainty in its policy making.
“We believe that if we are forward-looking, we are decisive, that actually helps in monetary policy transmission (into lending and deposit rates),” he said.
Published on July 25, 2025
