RBI May Cut Rates As Inflation Drops To Six-Year Low
Reserve Bank of India Governor Sanjay Malhotra has indicated that additional interest rate cuts may be considered if current economic trends continue. This follows the release of June inflation data showing a sharp decline to 2.1%, the lowest level in over six years. The RBI’s Monetary Policy Committee is expected to closely monitor both inflation and GDP growth before taking any further action.
Inflation Below Target
Retail inflation has now fallen well below the RBI’s lower threshold of 4%. The drop has been largely attributed to easing food prices after a favourable monsoon and improved supply conditions. Core inflation has also remained stable, reinforcing expectations that inflation will average around 3.2% for the financial year 2025–26.
Policy Stance Now Neutral
The RBI has already reduced the repo rate by 100 basis points since February, including a 50 basis point cut in June, bringing the current rate to 5.5%. With the policy stance now marked as “neutral,” the central bank retains flexibility to adjust interest rates in either direction. Malhotra clarified that future moves will be data-driven, balancing the need for price stability with economic growth.
Growth Considerations in Focus
While inflation is under control, the RBI is also factoring in signs of economic slowdown. Indicators such as weakening auto sales, reduced consumer demand, and slower wage growth suggest a softening economy. Malhotra acknowledged that while price control is the RBI’s core function, supporting growth is also a key priority, especially when fiscal space is limited.
Next Move Expected Post-Monsoon
Market analysts predict the next rate cut could come in the RBI’s September or October policy meeting if inflation remains low and domestic demand continues to cool. Any acceleration in growth or pickup in global oil prices, however, could delay further easing. For now, the central bank appears poised to support economic recovery through calibrated monetary policy.
