RBI MPC Minutes: Neutral Stance To Enable Actions As Per Evolving Situation, Say Members

RBI Governor Sanjay Malhotra has said that retaining a neutral monetary policy stance gives the central bank the flexibility to respond to evolving macroeconomic conditions, as the Reserve Bank of India delivered a 25-basis-points cut in the policy repo rate.

The RBI on Friday released the minutes of the December 3-5, 2025, meeting of the Monetary Policy Committee, in which the repo rate was reduced by 25 bps to 5.25 per cent, following a pause in the previous two meetings. Five members voted in favour of continuing with a neutral stance, while one member argued for a shift to an accommodative stance.

“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,” Malhotra said. He added that headline inflation is projected to remain close to the 4 per cent target in the first half of 2026-27, and that excluding precious metals, inflation is likely to be much lower, in line with the trend seen since early 2024.

Deputy Governor and MPC member Poonam Gupta said the most significant recent development for monetary policy has been the faster-than-expected moderation in CPI 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 to retain the neutral stance, underscoring that future policy actions should remain data dependent.

RBI Executive Director and MPC member Indranil Bhattacharyya noted that inflation surprised on the downside, falling to 0.3 per cent in October 2025, the lowest reading in the current CPI series. He said the moderation of headline inflation by about 180 basis points during September–October was faster than anticipated and was primarily driven by deflation in food prices. In the current context, he said, the subdued outlook for both headline and core inflation suggests the absence of demand pressures, and therefore warrants policy support for growth, especially as growth is projected to decelerate ahead.

Among the external MPC members, Ram Singh said that since the October meeting, incoming data on growth and inflation dynamics have created additional policy space to support growth momentum. “Will the rate cut heat up the economy? Numbers speak for themselves,” he said, adding that headline CPI inflation has remained on a downward trajectory regardless of how the data is analysed. While voting for a 25-bps rate cut, Singh said that given the dormancy in price momentum and the need to support growth, the cut should be accompanied by a change in stance to accommodative.

Economist Saugata Bhattacharya said cumulative rate cuts and liquidity measures have shifted monetary policy from mildly restrictive to a more balanced position. “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 said.

MPC member Nagesh Kumar said the December meeting took place amid mixed signals from the economy. He noted that GDP growth of 8.2 per cent in the second quarter of FY2026 exceeded expectations despite a challenging global environment. However, he cautioned that geopolitical and trade-related uncertainties are beginning to affect business sentiment. Kumar said the Trump-era tariffs are particularly impacting labour-intensive sectors such as textiles and garments, leather goods, gems and jewellery, and processed food products like shrimp, which have higher exposure to the US market.