Rethinking RBI Monetary Policy: Case for Deeper Repo Cuts
Why in the news
A June 2025 opinion argued RBI is too cautious: inflation dropped sharply, yet easing was small and the real rate is very high.
Key facts
- CPI inflation hit 3.16% in April 2025, possibly under 3% in May.
- Repo rate 6.0% after two 25 bps cuts, in February and April 2025.
- Real repo rate +2.84%; RBI’s FY26 inflation forecast is 4%.
- Q4FY25 GDP growth: 7.4%.
| Period | Stance | Result |
|---|---|---|
| 2009-2013 | Repo too low for too long | Double-digit inflation |
| 2015-2019 | Real rates averaged +2.2% | Growth stifled |
RBI’s forecasts repeatedly ran above actual inflation, causing over-tightening.
Concerns
- Low oil prices, better farm output and a strong rupee suggest FY26 inflation well under 4%; global slowdown needs domestic demand support.
Recommendations
- Cut the repo rate by at least 50 bps in June 2025.
- Respect long transmission lags; fix forecasting models; weigh both price stability and growth.
Exam angle
- Dual mandate: price stability and growth.