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RBI's neutral stance provides flexibility against evolving macroeconomic conditions: RBI Governor
Dec-22-2025

The minutes of Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting revealed that RBI Governor Sanjay Malhotra was in favour of neutral monetary policy stance while voting for a 25 basis points (bps) cut in repo rate, he added that the neutral stance would provide flexibility to the central bank to act according to the evolving macroeconomic conditions. Post its MPC meeting on December 3-5, 2025, RBI had announced reduction of the short-term lending rate (repo) by 25 bps to 5.25%. Further, RBI Governor expects headline inflation to close to the 4% target in H1 2026-27. He added that excluding precious metals, inflation is likely to be much lower, as has been the trend since the beginning of 2024.

Further, the Deputy Governor and MPC member Poonam Gupta has referred the faster-than-anticipated moderation in CPI headline inflation as most crucial recent development from the perspective of monetary policy. Meanwhile, she has shrugged off any concerns related to overhitting of the economy while backing the rate cute and noted that headline and core inflation along with most other nominal indicators showed no sign of overheating economy. Besides, RBI Executive Director and MPC member Indranil Bhattacharyya highlighted that the moderation of headline inflation by about 180 bps during September-October was primarily driven by the deflation in food prices.

Moreover, the independent MPC member Nagesh Kumar pointed that the December 2025 MPC meeting took place against the backdrop of mixed trends in the Indian economy. He indicated that despite the challenging and uncertain external environment, the GDP growth in Q2 FY2026 at 8.2% exceeded expectations. Meanwhile, he said that there is some evidence that the geopolitical and trade-related uncertainties have started to hurt the business sentiment. Also, the US tariffs are affecting the labour-intensive industries, such as textiles and garments, leather goods, gems and jewellery, processed food products like shrimp that have a higher exposure to the US market.

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