RBI MPC throws its trump cards: Why did Sanjay Malhotra-led panel cut rates and change its stance?

After three days of deliberation, the Reserve Bank of India's Monetory Policy Committee slashed repo rates by 25 basis points to 6%, to boost the sluggish economy, which is facing further pressure from Trump tariffs.

Apart from a 25 bps cut, the rate-setting panel also decided to shift the stance from neutral to accommodative.

"The global economic outlook is fast changing. The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation. Financial markets have responded through sharp fall in dollar index and equity sell-offs with significant softening in bond yields and crude oil prices," said the official MPC statement.


Tariff measures announced by the US have exacerbated uncertainties, RBI Governor Sanjay Malhotra said in his statement. The change in the policy stance means the MPC is considering only two options, either a status quo or a rate cut, and the stance does not directly link to liquidity conditions, he said.

Why did MPC cut rates?

Governor Malhotra highlighted that the ongoing global economic turbulence has influenced the committee's decision. "To deliberate and decide on the policy reparations, the global economic outlook is fast changing. The recent trade tariff-related measures have exacerbated uncertainties, clouding the economic outlook across regions, posing new headwinds for global growth and inflation. Amidst this turbulence, the US dollar has weakened appreciably," he said.

Malhotra also emphasized that domestic growth is showing signs of recovery after a sluggish first half of the last financial year, 2024-25, but remains below desired levels. "Growth is improving after a weak performance in the first half of the last financial year, 2024-2025, although it still remains lower than what we aspire for," he said.

"The domestic growth-inflation trajectory demands monetary policy to be growth supportive, while being watchful on the inflation front. We are aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance. As before, we shall remain agile and decisive in our response and put in place policies that are clear, consistent, credible and in the best interest of the economy," added Malhotra.

Why did RBI MPC change its stance?

The MPC retained its neutral stance in February, a position it first adopted in October 2024. This flexibility allows the RBI to respond to evolving economic conditions without being tied to a specific policy direction. Following worries of global slowdown over trade tariffs, the MPC decided to change it to accommodative in FY26's first meeting.

"In our context, the stance of monetary policy signals the intended direction of policy rates going forward. Accordingly, with respect to the policy rate, which is the mandate of the MPC, today’s change in stance from ‘neutral’ to ‘accommodative’ means that going forward, absent any shocks, the MPC is considering only two options – status quo or a rate cut," said Malhotra in his statement.

Malhotra further said that the 'accommodative' stance provides policy rate guidance, without any direct guidance on liquidity management.