PTI Mumbai
RBI Governor Sanjay Malhotra has said that a neutral monetary policy stance would give flexibility to the central bank to act according to the evolving macroeconomic conditions while voting for a 25 basis points cut in repo rate, along with five other MPC members.
The Reserve Bank of India (RBI) on Friday released the minutes of the meeting of the Monetary Policy Committee (MPC) held on December 3-5, 2025.
The RBI reduced the short-term lending rate (repo) by 25 bps to 5.25 per cent, following the status quo on the rate in the two preceding MPC meetings.
While five members voted for continuing the neutral stance to enable the central bank to take data-driven policy action, one member, however, advocated for changing it to ‘accommodative’, according to the minutes.
“I vote for a 25-bps rate cut. This will also stimulate demand and be growth-supportive. Moreover, I am in favour of retaining the neutral stance, which gives the requisite flexibility to remain data-dependent and act according to the evolving macroeconomic conditions and outlook,” Governor Malhotra said.
He also said headline inflation is projected to be close to the 4 per cent target in H1 2026-27.
Excluding precious metals, inflation is likely to be much lower, as has been the trend since the beginning of 2024, Malhotra added. Deputy Governor and MPC member Poonam Gupta said the most crucial recent development from the perspective of monetary policy has been the faster-than-anticipated moderation in CPI headline inflation.
“One may ask whether the current rate cut, resulting in a cumulative rate cut of 125 bps, could lead to overheating in the economy.
“However, not just headline and core inflation, but most other nominal indicators of the economy are prevailing at levels that indicate that the economy at this point is not showing any signs of overheating,” she said.
Gupta voted for a neutral stance, so any future course of policy action would be totally data dependent.
Indranil Bhattacharyya, RBI Executive Director and MPC member, noted that inflation surprised on the downside by plummeting to 0.3 per cent (the lowest level in the current CPI series) in October 2025.
Moderation of headline inflation by about 180 bps during September-October was faster than anticipated and primarily driven by the deflation in food prices.
In the current context, he said, when a muted inflation outlook, both in terms of the trajectory of headline and core (excluding precious metals), suggests the absence of demand pressures, the MPC ought to support growth, particularly when it is projected to decelerate going ahead.
Besides RBI officials in MPC, there are three independent members — Ram Singh (Director, Delhi School of Economics, Delhi); Saugata Bhattacharya (Economist, Mumbai); and Nagesh Kumar (Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi).
According to the MPC minutes, Ram Singh said that since the MPC’s October meeting, incoming data on growth-inflation dynamics have provided additional policy space to support the growth momentum.
“Will the rate cut heat up the economy? Numbers speak for themselves,” he said, adding that whichever way the inflation data is sliced, the headline CPI inflation has been on a downward trajectory.
While voting for a 25-bps cut in repo rate, he said that in view of the dormancy in the price momentum underlying headline CPI and CPI core, and the case for supporting growth momentum, the rate cut should be accompanied by a change in stance to “accommodative”.
Saugata Bhattacharya said the cumulative policy rate cuts and liquidity infusions will have moved the orientation of monetary policy from mildly restrictive to balanced.
“Pending incoming data, I believe the policy interest rate is now consistent with macroeconomic stability. Based on the totality of this assessment, I vote to cut the policy repo rate to 5.25 per cent, with the caveat that the next actions will be data dependent,” he added.
MPC member Nagesh Kumar said the December 2025 MPC meeting is taking place against the backdrop of mixed trends in the Indian economy. The GDP growth in Q2 FY2026 at a robust 8.2 per cent exceeded expectations, particularly in the context of a challenging and uncertain external environment.
He also said there is some evidence that the geopolitical and trade-related uncertainties have started to hurt the business sentiment.
The Trump tariffs, Kumar said, are particularly affecting the labour-intensive industries, such as textiles and garments, leather goods, gems and jewellery, processed food products like shrimp that have a higher exposure to the US market.
