RBI Signals Openness to Further Rate Cuts as Inflation Hits Six-Year Low

Reserve Bank of India (RBI) Governor Sanjay Malhotra has indicated that the central bank may consider additional rate cuts if inflation continues to undershoot projections or if economic growth shows signs of weakening. The statement comes amid a sharp decline in consumer price inflation and a neutral monetary policy stance.

 

Key Highlights:

 

June inflation fell to a 77-month low of 2.1%, well below the RBI’s FY26 forecast of 3.7%, driven by easing food prices.

 

The RBI has already cut the repo rate by 100 basis points since February 2025, including a surprise 50 bps reduction in June.

 

Governor Malhotra emphasized that both inflation and growth are equally important in policy deliberations, and the Monetary Policy Committee (MPC) remains data-dependent.

 

Policy Framework and Market Signals:

 

The RBI’s current repo rate stands at 5.5%, with overnight borrowing costs aligned through liquidity operations.

 

Bond yields remained steady at 6.32%, while the rupee appreciated 0.2% to 85.82 per dollar, reflecting market confidence in the central bank’s stance.

 

The MPC’s shift to a neutral stance allows flexibility to adjust rates in either direction, depending on evolving macroeconomic indicators.

 

Outlook: With inflation trending below expectations and growth signals mixed, the August 6 policy meeting could see further easing if data supports it. The RBI is also reviewing foreign bank ownership norms and liquidity management frameworks, signaling broader regulatory reforms.

 

Sources: Business Standard, Indian Express