Overview

• On June 6 the Monetary Policy Committee cut the repo rate by 50 basis points to 5.5% and slashed the cash reserve ratio by 100 basis points to 3%.
• The shift from an accommodative to a neutral stance is meant to preserve flexibility in supporting growth without presaging an immediate policy reversal.
• Malhotra indicated that if inflation remains below the RBI’s projections the central bank will consider additional rate reductions.
• Since December the RBI has maintained surplus liquidity through tools such as variable rate reverse repo auctions, which do not affect durable liquidity.
• The central bank will monitor weighted average call rate dynamics to ensure effective transmission of policy moves and manage banking system liquidity.