In Pursuit of Growth

(Source: The Indian Express, Editorial Page)

Also Read: The Indian Express Editorial Analysis: 07 June 2025
Also Read: The Hindu Editorial Analysis: 07 June 2025

Topic: GS3: Indian Economy (Monetary Policy, Growth, Inflation)

Context

The RBI’s Monetary Policy Committee surprised observers by lowering the repo rate and the CRR while simultaneously shifting its stance to “neutral”. While inflation has moderated, uncertainty over global and domestic factors continues to pose risks to India’s economic recovery.

Background: 

• RBI cut the repo rate by 30 basis points to 5.5%, continuing an easing trend that began in February 2025.

• It also reduced the CRR (Cash Reserve Ratio) by 100 basis points, potentially infusing ₹2.5 lakh crore into the banking system.

• However, in a surprise move, it changed its stance from “accommodative” to “neutral”, indicating possible caution in future rate cuts.

Monetary Policy Easing Amid Stable Inflation:

• April 2025 inflation was 3.16%, well within RBI’s comfort zone.

• RBI projects average inflation at 3.7% for 2025–26, lower than earlier forecasts.

• Lower inflation opens space for rate cuts to spur private consumption and investment.

Dual Measures: Repo Rate Cut + CRR Cut:

• The repo rate cut lowers borrowing costs across sectors.

• The CRR cut releases significant liquidity, aiding credit growth especially in MSMEs and real estate.

Caution Reflected in Neutral Stance:

• The move to “neutral” reflects RBI’s concern over external risks:

  • Geopolitical tensions (e.g., Russia-Ukraine, West Asia)

  • Global trade slowdowns

  • Erratic monsoon and climate uncertainties

• RBI Governor’s statement: “Monetary policy has limited room to support growth.”

Transmission and Future Trajectory:

• Liquidity infusion and lower policy rates will take time to filter into the real economy.

• Future policy will depend on inflation, rupee stability, and private investment trends.

Summary of RBI’s Measures and Impacts:

Measure	Details	Expected Impact
Repo Rate Cut	Lowered by 30 basis points to 5.5%	Cheaper loans, boost consumption and investment
CRR Cut	Reduced by 100 basis points	Injects ₹2.5 lakh crore liquidity into system
Policy Stance Shift	From “accommodative” to “neutral”	Signals caution, limits future rate cuts unless growth weakens

Way Forward:

• RBI must closely monitor inflation and rupee volatility before further easing.

• Coordination between monetary policy and fiscal stimulus (such as CAPEX) is crucial to maintain momentum.

• Growth-enhancing reforms in logistics, labor markets, and infrastructure are needed to complement monetary easing.

Practice Question: With inflation moderating, the RBI has eased monetary policy in 2025. Examine the scope and limits of monetary policy in supporting economic recovery in the current global context. (GS Paper 3 | 250 words | 15 marks)