Reserve Bank of India (RBI) Governor Sanjay Malhotra has signalled the possibility of a repo rate cut. He said a policy rate change would depend on future inflation trends and economic growth conditions.
The statement follows fresh data showing that consumer price index (CPI) inflation fell to a 77-month low of 2.1% in June. In comparison, CPI stood at 2.82% in May.
Speaking in an interview with CNBC TV18 on Tuesday, Malhotra said the RBI’s Monetary Policy Committee (MPC) would assess the situation before making any move.
CPI Drop Triggers Hope for Rate Cut
Malhotra said, “The MPC, as always, will factor in the evolving situation, the outlook and then take a call on what kind of policy rate the economy needs.”
He added that “if the inflation is lower or the outlook is lower, or the growth is lower, certainly the policy rate can be cut. But that is something that we have to wait and watch.”
The RBI had earlier projected CPI inflation at 3.7% for FY26. However, Malhotra said the central bank was expecting even lower numbers.
“That’s certainly on the cards. And if that happens, the monetary policy will have a look at it and take a call,” the governor added.
Growth Pressure May Influence Policy
In addition to inflation, Malhotra mentioned concerns over growth. If there is a slowdown, the central bank could be prompted to adjust interest rates to stimulate the economy.
He said, “If growth weakens significantly, then easing the repo rate would help in boosting demand and investments.” This approach aligns with RBI’s dual mandate — to control inflation and maintain economic stability.
Repo Rate at 6.25%, But Room for Easing
The RBI has kept the benchmark repo rate steady at 6.25% since February 2024. It maintained a “withdrawal of accommodation” stance to curb inflationary pressures.
But with the recent CPI numbers indicating subdued price growth, room for policy easing has opened up.
Analysts believe a 25-basis-point cut is possible in the next policy review, should inflation stay below projections.
Inflation Drivers Ease Across Categories
The June CPI drop was led by declines in food and fuel prices. Vegetable prices, which were volatile earlier this year, stabilised. Fuel prices remained soft due to steady international oil rates. Core inflation, which excludes food and fuel, also remained below 3% for the second month in a row.
The moderation in inflation comes as a relief for consumers and policymakers. It also strengthens India’s macroeconomic position as it seeks to maintain growth momentum.
Cautious Optimism from Economists
Experts welcomed the governor’s remarks as a sign of flexibility in RBI’s policy stance.
Dr. Rupa Roy, senior economist at SBI Research, said, “The RBI is rightly keeping its options open. If disinflation persists and global headwinds intensify, a rate cut could provide timely support.”
However, she cautioned that “one or two months of data is not enough. A consistent trend below 4% is what the MPC will watch for.”
Global Context and Domestic Balance
Globally, central banks like the US Federal Reserve and European Central Bank are also signalling cautious rate cuts amid disinflation. India’s stable rupee, strong forex reserves, and lower current account deficit add to RBI’s comfort in adjusting policy.
At the same time, it must balance inflation control with supporting India’s 7.2% GDP growth target for FY26.
What Lies Ahead
The RBI’s next monetary policy meeting is scheduled for early August. Traders and economists will closely track inflation, IIP, and GDP figures in the run-up.
If inflation stays near 2%, the case for a rate cut will strengthen. But any spike in food prices, monsoon disruptions, or global shocks may delay action.
Conclusion:
Governor Sanjay Malhotra’s statement offers a signal of possible relief to borrowers and businesses. While nothing is guaranteed, the path to a rate cut has certainly opened. The coming weeks will be critical as the RBI evaluates both inflation and growth to decide its next move.
Read more on India’s inflation trends and RBI policy decisions.
Refer to CNBC TV18’s interview with Governor Malhotra for the full conversation.