Benign inflation outlook to provide policy the space to support growth momentum: MPC minutes

RBI Governor Sanjay Malhotra
| Photo Credit:
PTI

The RBI’s six-member Monetary Policy Committee implemented a 25 basis point rate reduction to sustain economic momentum amid projected growth deceleration in late-FY26 and early-FY27, according to meeting minutes. Trade uncertainties and tariff pressures influenced this growth-supportive decision.

Committee members unanimously agreed that favorable inflation conditions and stable growth fundamentals created adequate policy flexibility. Two representatives – Saugata Bhattacharya (Mumbai-based Economist) and Poonam Gupta (Deputy Governor, RBI) – dismissed concerns about economic overheating following cumulative rate reductions totaling 125 basis points since February 2025.

During December 3-5, 2025 meetings, the MPC voted to lower the policy repo rate to 5.25% while maintaining a neutral policy stance. Delhi School of Economics Director Ram Singh advocated shifting the stance to accommodative.

Growth Indicators

RBI Governor Sanjay Malhotra noted resilient Q3 economic activity while highlighting emerging weaknesses in high-frequency indicators suggesting moderating growth in FY26’s second half. Economic expansion in FY27’s first six months is projected to stabilize between 6.7-6.8%.

Annual inflation remains subdued at approximately 2% for FY26 – half the initial forecast – with projections indicating alignment with the 4% target by FY27’s first half. Malhotra emphasized minimal demand pressures reflected in low core inflation measurements, supporting further monetary easing to stimulate demand.

Inflation Convergence

Deputy Governor Poonam Gupta confirmed moderating second-half growth within strong parameters while underscoring sustained inflation containment. Consumer price inflation has remained below target for nine consecutive months, averaging 2.3%, with expectations of continued moderation through mid-2026.

Gupta addressed potential overheating concerns, noting persistent slack across multiple economic indicators. “Current nominal measures and inflation patterns indicate available productive capacity rather than overheating pressures,” she observed, citing labor market data and manufacturing utilization rates.

Published on December 19, 2025