RBI MPC throws its ace: Why did the Sanjay Malhotra-led team lower rates and change positions?

After three days of deliberation, the RBI’s memorial Reserve Bank Policy Committee cut the repurchase rate by 25 basis points to 6% to increase economic sluggishness, which faces further pressure from Trump tariffs.

In addition to cutting 25 basis points, the rate setting panel also decides to shift the stance from neutral to adaptability.

“The global economic outlook is changing rapidly. Recent measures related to trade tariffs have exacerbated uncertainty, clouded the economic outlook across the region and posed new resistance to global growth and inflation. Financial markets have passed the sharp decline in the U.S. dollar index, falling bond sales, significant softening of bond production and falling bond prices, and issued huge sales of bond prices, and issued bond prices, and issued official MPC MPC statement.
Reserve Bank of India Governor Sanjay Malhotra said in a statement that the tariff measures announced by the United States have exacerbated uncertainty. He said the change in policy stance means that the MPC only considers two options, namely the status quo or lowering tax rates, and the stance is not directly linked to liquidity conditions.

Why does MPC reduce the rate?

Governor Malhotra stressed that the ongoing global economic turmoil has affected the Commission’s decision. “The global economic outlook is changing rapidly in order to make intentional and decide on policy compensation. Recently, measures related to trade tariffs have exacerbated uncertainty, clouded the economic outlook across the region and brought new headwinds to global growth and inflation. In this turbulence, the dollar turbulence has weakened appreciation.
Malhotra also stressed that in the first half of the first half of the year (2024-25), domestic growth showed signs of recovery, but remained below expectations. “Growth is improving after weaker performance in the first half of 2024-2025, although it remains below what we are pursuing,” he said.
Domestic growth trajectory requires monetary policy to have growth support while staying vigilant about inflation. Our goal is to build on a growing foundation, which is the basis for improved demand and supply responses and ongoing macroeconomic balance. As in the future, we will be agile in our responses and maintain an unfavorable attitude and maintain an unfavorable attitude.

Why did RBI MPC change its position?

MPC retained a neutral stance in February, which was first adopted in October 2024. This flexibility allows the RBI to respond to the evolving economic situation without being linked to specific policy guidance. After fears of a global slowdown in trade tariffs, MPC decided to change it to its first meeting in fiscal 26.

“In our context, the monetary policy stance marks the expected direction of policy interest rates. Accordingly, in terms of policy interest rates, this is the task of the MPC, and today’s position changes from “neutral” to “adaptive” means that moving forward without any shock, the MPC considers only two options – the status quo or rate cuts the rate,” Malhhhosra said. ”

Malhotra further stated that the “customer” position provides policy rate guidance without any direct liquidity management guidance.