RBI Minutes Show Neutral Is No Longer Tactical

The February minutes of the Monetary Policy Committee suggest the debate has moved beyond the level of the policy rate and into the architecture of the stance itself.

In October, neutral functioned as a restraint. Inflation had moderated sharply, and policy space was explicitly acknowledged. Yet the Committee chose to pause. The hesitation was framed around sequencing: the impact of earlier easing and fiscal measures was still unfolding, and uncertainty remained elevated. In that meeting, neutral insulated the Committee from prematurely signalling a downward path.

In December, when headline inflation fell to unprecedented lows and real rates appeared elevated relative to realised inflation, the Committee cut the repo rate by 25 basis points. The intellectual balance had tilted toward easing. Even then, neutral was retained. The justification lay in preserving flexibility and avoiding a pre-commitment that rates would continue to move in one direction.

Neutral, therefore, coexisted with a clear easing bias.

February marks a different configuration. The repo rate was held unchanged and the neutral stance was retained. However, the framing is no longer centred on policy space waiting to be used. Governor Sanjay Malhotra described the current rate as “appropriate” in light of resilient growth, trade-related tailwinds, and an inflation path projected to return to the 4% neighbourhood in the first half of 2026-27.

The language is one of calibration rather than deferred accommodation. Deputy Governor Poonam Gupta’s formulation captures this shift even more clearly.

Neutral Means Data
She wrote in the minutes that retaining a neutral stance implies that “the future course of policy action ought to be data dependent.” The phrasing is deliberate. Neutral is not being defended merely as a communications device. It is being positioned as the governing framework for the next phase. With 125 basis points already delivered and transmission still underway, the Committee appears to be rebalancing from activism to assessment.

The stance debate underscores this transition.

In both October and December, Professor Ram Singh argued for a shift to an accommodative stance, viewing it as a way to reinforce transmission and support growth expectations. The disagreement was substantive. In February, he remains the only member pressing for that change. Others converge around neutral as the preferred equilibrium setting.

In December, inflation was undershooting the lower tolerance threshold, and the real policy rate appeared misaligned with realised price dynamics. By February, headline inflation has inched up, projections show convergence toward the target in the first half of 2026-27, and part of the upward revision is explicitly attributed to precious metals rather than demand pressure. At the same time, at least one member cautioned that risks of further inflationary pressures were accumulating, even as household inflation expectations remained anchored. The inflation discussion, therefore, is no longer framed solely in terms of undershoot. Growth projections for the coming quarters have also been revised upward, supported by trade agreements and fiscal measures.

The factors that justified easing in December have therefore moderated. Neutral now accommodates two possibilities: that inflation normalises without generating demand pressures, and that growth sustains without requiring additional stimulus. It also allows the Committee to incorporate the CPI base revision and the forthcoming GDP revision into its reaction function without having signalled a directional commitment.

The April meeting, which will incorporate the new GDP and CPI series, may therefore serve as a genuine inflexion point rather than a routine review.

Markets will need to assess whether the revised data confirm the benign underlying inflation narrative or alter the growth-inflation balance in a way that reopens the rate debate.

If the new series reinforces the current projections, neutral could evolve into a durable resting stance for an extended period. If, however, the recalibrated data shift the output or inflation trajectory meaningfully, the Committee has preserved enough optionality to respond without appearing reactive. In that sense, February may not mark the end of the easing cycle, but it does mark the end of any presumption that further easing is inevitable.