RBI MPC Minutes: Inflation moderate in near-term, global trade policies pose risk to growth outlook; 5 key highlights

The Reserve Bank of India (RBI) released the minutes of the Monetary Policy Committee (MPC) meeting on Friday, February 21, highlighting that India's repo rate reduction was an appropriate policy response, with retail inflation moving towards the central bank's four per cent target. Yet, policymakers expressed concerns over economic growth getting hit by an excessively restrictive monetary policy, which led to the cutting of borrowing costs.

The RBI kicked off its rate cut cycle in its first bi-monthly MPC meeting of 2025 and delivered its first interest rate cut in five years. MPC members slashed the benchmark repo rate by 25 basis points (bps) to 6.25 per cent from 6.50 per cent earlier and maintained the policy's neutral stance.

This was the first interest reduction since May 2020 and the first revision in two-and-a-half years. In his maiden monetary policy review, RBI Governor Malhotra expressed an optimistic outlook for India’s economic growth, saying the country should “aspire” to a long-term expansion of seven per cent.

Also Read: RBI Monetary Policy: Is the rate cut a growth pill to boost demand? Here’s what it means for the Indian economy

RBI MPC Minutes: Here are the five key highlights-

1.Budget proposals on agriculture, fiscal consolidation positive for price stability: RBI Governor

"Given the macroeconomic outlook when inflation is expected to align with the target, and recognising that monetary policy is forward-looking, I view a lower policy rate to be more appropriate at the current juncture," said RBI Governor Malhotra. He added that India's Union Budget proposals on agriculture and commitment to fiscal consolidation are positive for price stability and help anchor inflation expectations over the medium term.

"Monetary policy easing, coupled with good agricultural sector growth and various growth-supportive measures in the Union Budget, would boost household consumption, investment in housing, capital expenditure, etc, thereby strengthening the pick-up in aggregate demand," said Malhotra.

However, Malhotra also pointed out that rising uncertainties in the global financial markets, trade policy, and the continuing risk of adverse weather events pose risks to India's inflation trajectory and economic growth outlook.

Also Read: RBI warns of financial risks from surging unsecured debt, speculative trading
 

2.India's inflation outlook turning positive: MPC members

The MPC members agreed that inflation is on a downward trajectory. India's retail inflation slowed to a five-month low of 4.31 per cent in January with the ease in food price inflation. Additionally, the government has forecast annual growth at a four-year low of 6.4 per cent for the year ending March.

“The food inflation outlook is turning decisively positive,” claimed RBI Governor Malhotra. The central bank targets four per cent inflation with a tolerance band of two percentage points on either side. "Given the forecast inflation trajectory, the policy repo rate might soon, if not even as of now, become excessively restrictive, increasing the risk of cumulatively damaging growth impulses," RBI MPC external member Saugata Bhattacharya.

3.RBI has greater space to address growth concerns

MPC member and RBI Deputy Governor M Rajeshwar Rao said with a further alignment of headline inflation towards the four per cent target, there is a greater space to address concerns regarding growth by way of reduction in the policy repo rate. “This policy measure, in conjunction with the fiscal measures, should give a fillip to aggregate demand conditions,” said Rao.

"There is a need to preserve the high growth momentum over the medium term, necessitating monetary policy to be sensitive to the evolving growth scenario and use various policy instruments including liquidity injection to reinvigorate growth," Rajiv Ranjan, RBI executive director and MPC member.

Also Read: RBI to conduct $10 billion forex currency exchange to infuse liquidity in India’s banking system

External MPC member Ram Singh said subdued private consumption due to low real wage growth is a factor behind the slowdown in growth. Still, excessively contractionary monetary policy has aggravated the problem. Singh argued that a demand push would not result in higher private capex unless interest rates are reduced immediately, saying the central government has provided the push through income tax cuts in the Union Budget.

4.RBI to prioritise growth amid subdued FDI inflows

External MPC member Nagesh Kumar flagged concerns about the threat of dumping excess capacities in China with their deep pockets and access to Western markets coming under a cloud. He noted that manufacturing sectors, including steel, have begun to feel the pinch (possibly explaining the negative growth). Meanwhile, the labour-intensive consumer sectors, such as garments and leather goods, have been facing an onslaught.

Also Read: RBI proposes scrapping foreclosure charges on loans for borrowers and MSMEs

The latest Economic Survey 2025 shows subdued FDI inflows, with foreign investors, both FDI and FPIs, repatriating, leaving little net investment. "Therefore, the case for supporting growth cannot be overemphasized," said Kumar.

He also noted that the panel could have been more ambitious and targeted a 50-basis-point cut but voted for 25 bps given the global uncertainties. "It would send a signal to the markets and private investors within and outside the country that India is serious and will do whatever it takes to revive economic growth momentum," said MPC external member Nagesh Kumar.

5.RBI MPC's inflation, GDP forecasts

The RBI MPC revised the real GDP growth for 2025-26 to 6.7 per cent from 6.6 per cent earlier. The Q1 GDP growth is projected to be 6.7 per cent, Q2 to 7.0 per cent, and Q3 and Q4 to 6.5 per cent each. The MPC retained the consumer price index (CPI)-based inflation for 2024-25 (FY25) to 4.8 per cent, with Q4 at 4.4 per cent. 

Assuming a normal monsoon next year, the central bank's rate-setting panel said CPI inflation for 2025-26 (FY26) is projected at 4.2 per cent with Q1 at 4.5 per cent; Q2 at 4.0 per cent; Q3 at 3.8 per cent; and Q4 at 4.2 per cent. 

Five of the six monetary policy committee members joined the panel in recent months. February was the first policy meeting for both Malhotra and Deputy Governor M. Rajeshwar Rao, who is temporarily filling the position after Michael Patra retired last month. The government has yet to announce Patra’s successor. Three external members were appointed last October. The next meeting of the central bank's MPC is scheduled for April 7 to 9, 2025.