Perspective on the RBI MPC Announcement by Arsh Mogre, Economist, PL Capital
Below the Perspective on the RBI MPC Announcement by Arsh Mogre, Economist, PL Capital
“The June 2025 RBI Monetary Policy Committee (MPC) meeting marks a defining moment in India’s post-pandemic monetary recalibration. The Committee delivered an outsized 50 basis point cut in the policy repo rate—taking it to 5.50%—alongside a staggered but substantial 100 bps reduction in the Cash Reserve Ratio (CRR), which will inject ?2.5 lakh crore into primary liquidity over four tranches starting September. This dual-action strategy far exceeded market consensus, which had largely pencilled in a 25 bps cut, and decisively signaled that the central bank is frontloading policy easing to proactively anchor growth, even as inflation remains well-behaved. In total, the RBI has cut rates by 100 bps in CY2025, making this the sharpest cumulative easing cycle since the pandemic. From a real rate perspective, the cut meaningfully realigns monetary conditions. With forward inflation projected at 3.7% and the repo now at 5.5%, the real policy rate has compressed to 1.8% from over 2.8% earlier this year. This recalibration is intentional. A real rate corridor of ~1.0–1.5% is empirically more consistent with India’s investment and credit expansion needs, especially in a disinflationary global environment. By lowering both the price (repo) and quantity (CRR) of money, the RBI has flattened the transmission curve, aiming to synchronize falling input costs with improving demand elasticity.
Externally, the RBI’s comfort is rooted in strong buffers. FX reserves have climbed to $691.5 billion, FDI inflows remain steady even as FPIs turned net sellers ($1.7 billion YTD), and the FY26 current account deficit is expected to remain under 1.5% of GDP. Import cover is back above 11 months. These buffers provide policy insulation and dilute fears of a repeat of the 2013-style taper tantrum fallout. The rupee’s relative stability post-policy also validates the RBI’s confidence in external sustainability.
In effect, the June MPC outcome is not merely accommodative—it is assertively growth-targeted, without compromising on credibility. The CRR cut in particular offsets short-term pressures on bank margins from lower rates, ensuring that monetary easing is not liquidity-starved. Contrary to fears that the stance shift to ‘neutral’ implies an end to easing, it should be interpreted as a calibration move to retain future optionality and prevent speculative froth. If inflation remains below 4% through H2FY26—and transmission visibly improves—there remains room for another 25 bps cut before year-end.
In conclusion, this is not business-as-usual monetary policy. It is a deliberate realignment based on a rare convergence: falling inflation, stable external accounts, and the need to pre-empt global slowdown spillovers. Far from being reactive, the RBI is executing a calibrated pivot—bold in dosage, balanced in posture, and anchored in data. The June MPC has effectively reset the macro template: from inflation vigilance to growth activation, with precision and restraint.”
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