RBI to decide policy based on data trends

Reserve Bank Governor Sanjay Malhotra on Friday said the future monetary policy actions will be decided by the trajectory of growth and inflation.

If the RBI's expectation of 6.5 per cent real GDP growth and inflation cooling to 3.7 per cent in FY26 plays out, there is "little space" for interest rate cut.

Speaking to reporters here, he also spelled out that the aspirational growth rate for India is 7-8 per cent per annum.

Earlier in the day, the six-member monetary policy committee voted 5:1 in favour of a surprising 50 basis points cut in repo rate. Malhotra also announced a 1 percentage point decrease in cash reserve ratio, or the share of deposits parked with RBI by banks. He also announced a shift in the stance of the monetary policy from 'accommodative' to 'neutral'.

"Neutral will mean that it (rate calls) can go either ways. It will depend on how the data comes in. If the growth is weaker, it can mean that it will go down. If the growth is good, inflation is going up, it can mean that the repo rate can go up. It will depend on how the data both on inflation and growth turns out," Malhotra said.

He said the monetary policy will surely help accelerate the credit growth and help in the broader economic growth.

When asked if he expects the government to shoulder the GDP growth responsibility from here on, the RBI Governor made it clear that there is not much of firepower available with the RBI and it is for other stakeholders to do their bit to push growth.

Malhotra said there is a need for the transmission to get faster in the economy, underlining that the process has been better this time than in the past instances.

He said as against two rate cuts of 0.25 per cent each, the bank deposit rates have come down by 0.27 per cent, outstanding credit by 0.17 per cent. He however conceded that the growth rate of fresh loans is a little slow at 0.06 per cent.

One of the motives of frontloading the rate cuts and coupling it with a CRR reduction is to hasten the transmission, he said.

Malhotra said there was no voting on the stance, but the matter was discussed over the three days of deliberations and all the six members of the rate setting panel were for it.

He said the reason for changing the stance to 'neutral' now is because it was felt that there is no further room to cut rates, and the same had to be conveyed to all stakeholders and provide a certainty.

"Certainty will strengthen the economy," Malhotra said.

On the CRR cut, he said past experience suggests that "we do not need the liquidity buffer at 4 per cent and 3 per cent in the current circumstances is comfortable." He said the call rate is going to stay at 5.25 per cent and will go down if the RBI undertakes Variable Rate Reverse Repo rate (VRRR) auctions.