Reserve Bank of India (RBI) Governor Sanjay Malhotra confirmed that the Monetary Policy Committee (MPC) had unanimously decided to reduce the policy rate by 25 basis points (bps), from 6.50% to 6.25%.
Malhotra addressed the challenges posed by the global economic landscape, highlighting that while high-frequency indicators suggest resilience and growth in trade, overall global growth remains below historical averages. He said, “Progress on global disinflation is stalling, hindered by services price inflation.”
Regarding global financial markets, Malhotra pointed out that expectations about the size and pace of rate cuts in the United States had led to a strengthening of the US dollar. He further explained, “The global economic backdrop remains challenging. The global economy is growing below the historical average, even though high-frequency indicators suggest resilience, along with continued expansion in trade. Progress on global disinflation is stalling, hindered by services price inflation.”
These conditions have led to hardened bond yields and significant capital outflows from emerging markets, resulting in sharp currency depreciations and tighter financial conditions.
“The US dollar has strengthened due to expectations about the size and pace of rate cuts in the US,” Malhotra said. “Bond yields have hardened, emerging market economies have experienced large capital outflows, leading to sharp depreciation of their currencies and tightening of financial conditions. Divergent monetary policy trajectories across advanced economies, along with lingering geopolitical tensions and elevated trade and policy uncertainties, have exacerbated financial market volatility.”
Malhotra also emphasized the impact of geopolitical tensions and policy uncertainties on market volatility, adding that such an unpredictable global environment has created significant policy trade-offs for emerging economies.
Despite these global challenges, Malhotra reassured that the Indian economy remains strong and resilient, although not entirely immune to external pressures. “The Indian rupee has come under depreciation pressure in recent months,” he said. However, he assured that the RBI is actively utilizing all available tools to address the multifaceted challenges facing the economy.
The MPC’s meeting began on February 5, 2025, and will continue for three days to discuss and set the new interest rates. In the previous MPC meeting held in December 2024, the RBI announced a 50 basis point cut in the cash reserve ratio (CRR), bringing it to 4%. However, the benchmark repo rate was left unchanged at 6.50%.
-ANI
