RBI MPC Minutes Apr 2025_230425_Others : Views converge to deliver further easing By Emkay Global Financial Services Ltd
The April MPC meeting minutes showed remarkable convergence in members’ views – all cited the potential downside risks to growth from Trump’s tariffs, along with an increasingly encouraging inflation outlook as underpinning the rate-cut call. The need to provide clarity on near-term policy guidance amid global uncertainty drove the decision to change stance as well. Going ahead, while a 25bps cut in June is a given, the evolving tariff situation is likely to drive the policy path with another 25-50bps of possible easing thereon.
Members singing from the same hymn sheet
The April MPC meeting minutes reflect a remarkable convergence in members’ views and outlook, as evident in the unanimous decision to cut the repo rate by 25bps while also changing the stance to ‘accommodative’ from ‘neutral’. With this meeting taking place a few days after Trump’s ‘Liberation Day’ tariff announcements, every MPC member mentioned the need to support growth amid a benign and encouraging inflation outlook
Tariff-led growth headwinds weigh on MPC decision
The MPC was unanimous in their opinion that the tariff announcements, if maintained, would significantly hurt global growth and, in turn, India’s near-term growth prospects. Most members mentioned that India’s growth being largely domestic-demand-driven provides a buffer against significant global shocks. For instance, Governor Malhotra believes that the strong domestic demand would cushion against global headwinds. However, while Dr Ranjan also pointed to India’s relatively better position due to it being primarily domestic driven, all members cited that downside risks to growth have risen due to possible spillovers via external channels. Notably, Bhattacharya was a little more concerned about these spillovers if tariffs are not significantly diluted. With unanimity around higher downside risks to growth, most members also mentioned the need to provide clarity on near-term policy guidance via a change of stance to ‘accommodative’. Notably, Dr Kumar was in favor of a larger magnitude of easing (50bps), but stated the need to remain cautious and a gradual easing in the face of global uncertainty as the reasons for ultimately agreeing with the 25bps rate-cut call.
Inflation outlook seen as extremely encouraging
Members were also unanimous in stating that the inflation outlook is now far better than a few months ago, with several members (Governor Malhotra, Dr Kumar, Dr Ranjan) opining that the progress on disinflation now affords the MPC more room to focus on growth. The expectation of a normal monsoon and healthy rabi crop harvests, along with steady and moderate core inflation and falling global crude and commodity prices, was near-unanimously cited as the key driver for the encouraging inflation outlook. Bhattacharya and Ranjan also mentioned household inflation expectations as being wellanchored currently. Further, Bhattacharya stated that while potential foreign ‘dumping’ of goods in India was certainly a concern for domestic output, it would provide further downside for inflation by lowering input and intermediate goods costs. Governor Malhotra opined that the favorable factors for inflation outweigh possible adverse impacts, and will thus drive disinflation for most of FY26.
RBI to remain nimble amid global uncertainty
This rate cut and stance change were on expected lines, though global uncertainty has remained elevated, with the ‘Liberation Day’ tariffs having since been paused for 90 days, after this MPC meeting. While the endgame is anyone’s guess, it is likely that monetary policy may have to do the heavy lifting in India by being more a countercyclical than a fiscal policy this year. Though a further 25bps cut in June is a given, the resolution of tariff uncertainty would dictate the policy path. We do not rule out another 25-50bps of easing thereon which could take the terminal rate to 5.25% in this cycle – no doubt contingent on the extent of the global slowdown/recession. Fluid global dynamics will require the RBI to be nimble in managing any risk of tighter financial conditions. The RBI has non-conventional easing options like i) easier regulatory (lending) norms, ii) lower daily CRR maintenance requirement for banks to sub 90%, ii) sterilized Rupee management, etc, to use as well if needed
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