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The June MPC meeting minutes provided clarity on the triple surprise of frontloaded easing, CRR cut and stance reversion. Members were unanimous in citing the lower inflation forecast for opening the monetary policy space to act, while the argument for frontloading was underpinned by the need to support growth amid global uncertainty, as well as to hasten the transmission of easing. The stance reversion to ‘neutral’ was to avoid unnecessary market assumptions of further heavy easing, while retaining flexibility to act if macro dynamics evolve. Given the likely impending reset in domestic macro dynamics, the RBI may ease rates once more by end-CY25.

Members singing from the same hymn sheet

The June MPC meeting minutes provide some clarity on the triple surprise of a 50bps rate cut, 100bps CRR cut and stance reversion to ‘neutral’. There was unanimity around a benign inflation trajectory, along with the need to support growth and hasten transmission of easing, even as Bhattacharya cited global uncertainty behind his call for only 25bps of easing.

Renewed confidence in lower inflation drives outsized rate-cut call

There was unanimous optimism from the MPC on the inflation trajectory, with the RBI revising its FY26 CPI forecast to 3.7%, from 4% earlier. Nearly all members cited the likelihood of above-normal monsoons, contained core inflation amid moderating commodity prices, and well-anchored inflation expectations as the reasons behind this optimism which opened the space for the monetary policy to act. Interestingly, per Professor Singh, the real rate is too high with this revised CPI forecast – at 6% repo rate, it would work out to be 2.3%. With estimates putting India’s post-Covid real neutral rate (r*) at 1.65%, it would imply scope for 75bps of easing in the current cycle. He also stated that given the lower trajectory of core inflation recently, there is no indication of demand-pull inflation, and a 50bps rate cut should not cause any overheating.

Need to support growth and hasten transmission via frontloading

Members also pointed toward the need to support growth via monetary policy at this juncture. Governor Malhotra stated that while growth remains steady, “it is lower than our aspiration”. He also mentioned the need for growth-supportive policies due to tariff and conflict-led global uncertainty. Most members (Dr Ranjan, Dr Gupta, Dr Kumar) also cited global uncertainty as a factor behind their rate-cut call. On the other hand, Bhattacharya used uncertainty to call for caution in the pace of monetary policy easing, and was the sole member to call for a 25bps cut. Members also mentioned the need to hasten transmission of easing as a reason for frontloading cuts. Frontloading, along with the heavy liquidity infusion (Rs9.5trn since Jan-25; CRR cut of 50bps from Sep), would provide greater certainty to economic agents and help grease the path for transmission. Dr Ranjan also mentioned the need to focus on facilitating transmission in the near term.

Stance reversion driven by need to guide markets and remain flexible

Interestingly, the June MPC saw the stance being reverted to ‘neutral’, having been changed to ‘accommodative’ only in the last meeting in April. Governor Malhotra’s reasoning for this reversion was that the stance reflects the policy outlook, and therefore, with 100bps of rate cuts since Feb-25, the monetary policy would have limited tools to support growth. Thus, ‘neutral’ would give the MPC the flexibility to move in any direction in response to changing macro dynamics. Dr Ranjan added that pairing a 50bps cut with an ’accommodative’ stance may lead to market expectations of heavy easing which would cause volatility when repriced. Dr Singh cited global uncertainty as the justification for supporting the stance reversion.

Domestic macro reset to lead to further easing by end-CY25

These minutes confirm that while the RBI frontloaded easing at a time of relative global calm and fair visibility on domestic macro dynamics, the negative reaction to the stance change may have been premature. With a likely impending reset in domestic macro dynamics through lower growth and inflation (Emkay GDP growth and CPI forecast: 6% and 3.3-3.4%, respectively), the RBI may move to ease rates again by end-CY25.

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