'We've won the inflation battle': RBI Guv Sanjay Malhotra on rate cuts

Business Standard

a day ago

The Reserve Bank of India on Friday expressed confidence in having brought inflation under control, shifting its focus toward sustaining economic growth.
Speaking after the Monetary Policy Committee (MPC) meeting, RBI Governor Sanjay Malhotra said the central bank had effectively curbed price pressures. 'We have won the inflation battle,' he declared.
Retail inflation, as measured by the Consumer Price Index (CPI), eased to 3.16 per cent in April, the lowest since July 2019, and remained below the RBI's 4 per cent target for the third consecutive month. A sharp fall in food inflation, down to 1.78 per cent from 8.7 per cent a year earlier, played a key role in this easing trend.
Meanwhile, Wholesale Price Index (WPI) inflation fell to 0.85 per cent in April from 2.05 per cent in March, driven largely by a decline in fuel and power prices.
Our choice was to give certainty to markets: RBI guv
Explaining the timing of the policy moves, Malhotra said, 'Our choice was to keep the stance accommodative but not act, or to act and change the stance to neutral. We chose to act. Actions are as important as intent.'
He said, 'Whatever we do, we do decisively and at the right time. The more certainty we give to markets and banks, the stronger our macros will be.'
The RBI reduced the repo rate to 5.5 per cent, and lowered the Cash Reserve Ratio (CRR) to 3 per cent from 4 per cent, to be implemented in four tranches starting in September. The RBI governor said the CRR move alone would inject about ₹2.5 lakh crore into the system by November-end.
'We could have announced the CRR cut later,' he said, 'but we did it today to assure banks that liquidity will be maintained. It gives them room to plan credit and reduce rates.'
CRR comfortable for liquidity management
Explaining the rationale behind the CRR cut, Malhotra said, 'Over the last 12–13 years, CRR has mostly remained at 4 per cent. During Covid, we reduced it by 1 per cent. Based on current experience, 3 per cent is a comfortable reserve ratio from a liquidity management perspective.'
He estimated the cut could improve bank Net Interest Margins (NIMs) by at least seven basis points.
Neutral stance means data-dependent decisions
On the shift from an accommodative to a neutral stance, Malhotra clarified, 'Neutral means we are open to either direction; it all depends on incoming data. The statute doesn't mandate a vote on stance, but all six MPC members were in agreement to shift to neutral.'
He said the MPC has 'limited scope to boost growth', which made the change in stance necessary. 'If the data demands that we stay put, we will. But if it points to further action, we will not hesitate,' he said.
Lending norms eased for small loans, gold loans
In an effort to improve credit access, especially for small borrowers, the RBI announced the following:
LTV cap for small loans (up to ₹2.5 lakh) has been raised to 85 per cent from 75 per cent, including interest.
Final guidelines for gold loans will be released by Monday.
Credit appraisal will no longer be required for small-ticket gold loans.
End-use monitoring will apply only to loans under Priority Sector Lending.
These changes are likely to ease access to funds for low-income borrowers, particularly in rural India where gold loans are a primary source of credit.
Liquidity abundant; no target call rate
On liquidity management, Malhotra reiterated: 'Liquidity is abundant. We have not set any target call rate. We'll watch how the situation evolves, but right now, there's no concern.'