Key Points

A neutral stance requires neither stimulation nor curbs on liquidity as it strikes a fine balance between controlling inflation without hurting growth.

The RBI Governor said that the outlook for inflation had become even more benign due to the sharp decline in food prices and the GST rate cuts. The RBI has, therefore, revised its average projection of the inflation rate to 2.6 per cent for 2025-26 from 3.1 per cent projected in August.

The monetary policy committee has revised the GDP growth rate projection to 6.8 per cent from 6.5 per cent earlier due to the robust growth outlook driven by domestic demand, support of a good monsoon and monetary policy easing and the GST rate cuts, Malhotra said.

The RBI Governor further stated that the monetary policy committee was sticking to the neutral stance as it was waiting for the earlier monetary policy easing was still playing out and trade related implications are unfolding.

“It would be prudent to wait for the policy actions to play out before charting out are next round of monetary policy actions,” the RBI Governor said.

The repo rate has been reduced 100 basis points in quick succession since February this year and the transmission to the economy was still working out.

A lower policy rate and more liquidity with banks leads to a decline in interest rate on bank loans which makes borrowing easier for consumers as well as businesses resulting in more consumption and investments in the economy leading to higher growth.

However, the effectiveness of the rate cut hinges on how quickly and efficiently commercial banks pass on the benefits to borrowers.

- IANS