Monetary Policy Committee (MPC)

Recently, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), headed by Governor Sanjay Malhotra, announced a 25 basis points (bps) reduction in the repo rate. This brings it down to 5.25% from 5.50%.

• The RBI Governor described the period as a “rare Goldilocks phase” where both inflation and growth are perfectly balanced.

Key Decisions of the MPC

• Repo Rate Cut: 
  • The repo rate was reduced by 25 bps to 5.25%, signaling a shift towards growth support given the favorable inflation environment.
  • This marks the first rate reduction after two consecutive pauses, with a cumulative decrease of 125 bps during CY 2025.
• Growth and Inflation Projections:
  • The FY26 GDP growth forecast was revised upward from 6.8% to 7.3%, demonstrating strong economic momentum.
  • The CPI inflation forecast for FY26 was reduced to 2%, down from the previous estimate of 2.6%, reflecting well-controlled price pressures.
• Monetary and Liquidity Measures:
  • Open Market Operations (OMO): The RBI announced purchases of ₹1 lakh crore in Government Securities to inject liquidity into the banking system.
  • USD/INR Forex Swap: A $5 billion 3-year USD/INR buy-sell swap will be executed in December to manage liquidity in the forex market.
• Policy Stance: 
  • The MPC adopted a neutral stance to maintain policy flexibility in response to evolving economic conditions.
  • The rate reduction is aimed at supporting investment and consumption while maintaining price stability.
• Rupee Volatility: The RBI acknowledges the rupee’s depreciation but views it as a natural market occurrence. 
  • Currency fluctuations are monitored closely to prevent excessive volatility that could affect economic stability.

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