In his inaugural Monetary Policy announcement on Friday, Reserve Bank of India (RBI) Governor Sanjay Malhotra revealed that the Monetary Policy Committee (MPC) has unanimously decided to lower the policy rate by 25 basis points, bringing it down from 6.5% to 6.25%.
Malhotra addressed the challenges posed by the current global economic landscape, noting that while high-frequency indicators point to resilience and growth in trade, overall global growth remains below historical averages. “Progress on global disinflation is stalling, hindered by rising services prices,” he stated.
He also discussed the dynamics of global financial markets, indicating that expectations regarding the size and timing of rate cuts in the United States have contributed to a stronger US dollar. “The global economy is growing below its historical average, despite signs of resilience and continued trade expansion. The ongoing stalling of global disinflation, coupled with services price inflation, has impacted this situation,” Malhotra explained.
This environment has resulted in higher bond yields and significant capital outflows from emerging markets, leading to sharp currency depreciations and tighter financial conditions. “The strengthened US dollar and hardened bond yields have prompted large capital outflows from emerging market economies, causing notable currency depreciation and tighter financial conditions,” he added.
Malhotra also highlighted how geopolitical tensions and policy uncertainties are exacerbating market volatility, creating significant policy trade-offs for emerging economies. Despite these challenges, he affirmed that the Indian economy remains robust and resilient, albeit not completely insulated from external pressures.
He acknowledged the recent depreciation of the Indian rupee but reassured that the RBI is actively employing all available tools to tackle the complex challenges facing the economy.
The MPC began its three-day meeting to discuss new interest rates on February 5, 2025. In the previous MPC meeting in December 2024, the RBI announced a 50 basis point reduction in the cash reserve ratio (CRR), lowering it to 4%, while maintaining the benchmark repo rate at 6.5%.
