MPC Analysis: To promote growth, RBI Governor Sanjay Malhotra unpacks everything at once.

Governor Sanjay Malhotra of the Reserve Bank of India delivered a surprisingly packed 55th Monetary Policy. A 50 basis point (bps) repo rate cut was the first goodie he unlocked, followed by a 100 bps cash reserve ratio (CRR) reduction. Both of these reductions were greater than the projected 25 basis point repo rate drop and the potential 50 basis point CRR decrease, the timing of which was not foreseen in the June 6 policy. The RBI Governor has transferred the torch to the banking sector, Corporate India, and the government to promote growth by delivering the two surprises. In his monetary policy committee (MPC) speech, he explained the reasoning behind frontloading the rate drop, saying, "MPC also felt that under current circumstances there is limited room to support growth." The abrupt shift in stance from accommodating to neutral, which implies that monetary policy-related action to promote economic development is improbable, is what makes it more intriguing. Indeed, the shift from a neutral to an accommodating position only occurred in the April MPC. On June 6, 2025, RBI Governor Sanjay Malhotra announced an unexpected and aggressive shift in the central bank's monetary policy during the 55th Monetary Policy Committee (MPC) meeting. The RBI reduced the repo rate by 50 basis points and slashed the cash reserve ratio (CRR) by 100 basis points. These actions were larger than anticipated, with the market expecting a 25 basis point rate cut and a 50 basis point CRR reduction. Malhotra's decision to frontload these rate cuts was aimed at providing immediate relief to the economy, which is facing challenges from both domestic and global factors. This move seeks to stimulate growth by easing financial conditions and increasing liquidity in the banking system. In his MPC speech, Malhotra explained that the decision was made because there is limited room to support growth under current economic conditions. The RBI has moved from an accommodative to a neutral stance, indicating that further rate cuts are unlikely unless the economic situation worsens. This change in policy direction comes after a period of low inflation, with the Consumer Price Index (CPI) falling to 3.16% in April 2025, providing the RBI with the flexibility to take such actions. Malhotra emphasized that the central bank is now focusing on promoting growth while managing inflation within its target range. The policy shift also signals that the RBI is shifting its focus from just managing inflation to fostering broader economic development. Despite the global economic uncertainties, including trade tensions and concerns over external economic factors, the RBI is aiming to boost consumer demand and investment through these measures. The central bank's growth projection for the fiscal year 2025-26 remains optimistic at 6.5%, but it acknowledged the risks posed by the global economic environment. The market reaction to these moves has been positive, with stock markets seeing gains, particularly in the banking sector. The Nifty50 crossed the 25,000 mark, reflecting investor confidence following the rate cuts. However, the shift to a neutral stance has raised concerns among some analysts who believe the RBI may have limited flexibility going forward. The full impact of this policy change will become clearer in the coming months, as the central bank monitors both domestic and global economic developments.