Much Ado About Nothing? Rate Cut And More

Reserve Bank of India Governor Sanjay Malhotra on Friday said he will continue with the practice of a detailed statement after an MPC meeting, like his predecessors. Unlike his immediate predecessor, he refrained from using metaphors, such as an elephant or Arjuna’s eye, for inflation or the fight against it. 

Malhotra-led MPC cut the repo rate by 25 basis points to 6.25%, in a largely anticipated move that was in part policy pragmatism. But without liquidity support, it seems like a half-measure. Our in-house op-ed – “New Governor sees Small Space, Squeezes in Rate Cut” argues that the move might be more about optics than substance. It also reasons why this appears a tactical tweak rather than the start of an easing cycle. 

Also, Dhananjay Sinha, Co-Head of Equities and Head of Research at Systematix Group, in his analysis for us—"Will RBI’s Acquiescence to Rate-Cut Demand Work?” dives into the heart of the matter. He argues that while the rate cut might serve as a quick remedy to immediate pressures, India’s growth revival may well require deeper structural reforms rather than relying solely on counter-cyclical monetary easing. After all, small measures may not suffice when the appetite for robust growth is so immense.

But was it a case of a new governor, same script? Not quite. In an in-house column, “Sanjay Malhotra’s RBI Debut: Measured, Assured, and On-Record” we take a closer look at the governor’s handling of the press conference. Malhotra navigated probing questions with precision—addressing concerns over the weakening rupee and global uncertainties without resorting to templated answers. His declaration, “Nothing I say is off-record. Everything is on record,” underscores a commitment to transparency.

While predecessors Shaktikanta Das and Urjit Patel also trimmed rates in their debut acts, Malhotra’s performance had its own signature flair: a “less restrictive” neutral stance, flexible inflation targeting, and a commitment to safeguarding stability without stifling efficiency. Translation: the RBI is still watching inflation, yet it recognises the need for financial stability and economic growth. For those interested in tracing the lineage of first acts at the MPC, our piece “Malhotra Cuts Repo Rate by 25 bps in First MPC Meeting, Follows Predecessors” also offers a look at how previous governors made their mark. 

Rewind to last week’s cliffhanger: Would the RBI cut or hold? Our pre-MPC coverage was exhaustive, in case you need some context:

Dhananjay Sinha’s interview warned of inflation’s spectre—still relevant, given Malhotra’s “flexible” 4% target. Also, an open letter to the Governor made a case for clear communication with the markets. 

The post-policy press conference also reminded us that with Michael Patra a key constant exited, adding more variables to RBI’s rate-setting equation.  

As the RBI navigates demands for bolstering growth while keeping inflation in check, the market remains keenly attentive to its every move. Is the rate cut merely a tactical Band-Aid? Are more liquidity measures in the offing? How long will banks take to pass on the rate cut? And will anyone miss the word “transitory”? Only time will tell, and we’ll be here to unpack every twist and turn.

As we wait for the answers, TK Arun, former Editor of The Economic Times, in an op-ed for us wrote on a curious cross-party consensus with BJP-ruled states joining Opposition-ruled ones in demanding that the Finance Commission devolve 50% of the taxes collected by the Centre to the states.