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RBI Governor Malhotra Signals Flexibility: Neutral Stance Doesn’t Bar Future Rate Cuts

Reserve Bank of India Governor Sanjay Malhotra emphasised yesterday that the RBI’s current “neutral” monetary policy stance does not close the door on future rate cuts. In an interview with CNBC-TV18, he made it clear: now that inflation has eased and growth remains subdued, the central bank retains room to manoeuvre—whether that means easing policy further or pausing to reassess.
Neutral Doesn’t Mean Frozen: RBI Governor Malhotra
Malhotra’s point was simple yet nuanced: neutral policy signifies flexibility, not indecision. “We can go either direction depending on the outlook, not just today's data,” he told the channel, noting that if both inflation and growth undershoot forecasts, cutting rates remains an option . In fact, during the same session, he reiterated that incoming April–June inflation figures will heavily influence the next Monetary Policy Committee (MPC) decision.

Why is this Noteworthy Now?
It all comes on the back of a surprising move in June: a sharp 50-bps repo rate cut, dropping the rate to 5.5%, accompanied by a shift in stance from accommodative to neutral and a 100-bps cut in the Cash Reserve Ratio. The rationale, explained Malhotra, was front-loading support for growth—with a cautious exit plan.
Domestic Demand Still Fragile
Despite moves to ease policy, both retail and core inflation have softened—while growth indicators like auto sales and real estate remain uninspiring ﹣ even dipping to 18‑month lows in vehicle sales and a 20% drop in housing sales in top cities. That’s precisely why the RBI feels the freedom to further cut rates if required.
Next Steps: Data-Dependent, Not Calendar-Bound
The governor stressed the MPC would continue taking “data-driven” action. That means watching inflation and growth closely before committing to any further cuts or hikes. Many analysts expect a pause until September or October, suggesting the RBI is unlikely to act at its August MPC meeting.
What Does This Mean for You?
- Borrowers: If you’ve been eyeing a cheaper home or auto loan, your patience may pay off—especially if upcoming inflation data stays soft.
- Investors: Bond yields may dip on rate-cut talk, while equities could benefit from sustained liquidity—but keep an eye on macro data.
- Businesses: Cost of capital remains favourable, but unless credit picks up, growth might stay tepid.
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