In a strongly worded critique, TV Mohandas Pai, former Infosys CFO, expressed deep concern over the Reserve Bank of India’s (RBI) recent monetary policy decision to keep the key repo rate unchanged despite clear signs of easing inflation.
According to Pai, the monetary policy committee’s (MPC) decision to keep repo rates high is not just economically unjustified but could also push India further toward becoming a “rent-seeking economy”.
Pai took to the social media platform X on Wednesday to express his disappointment with the RBI MPC outcome to hold repo rate unchanged at 5.5% while lowering the inflation forecast. The six-member rate-setting panel voted unanimously to keep the key repo rate unchanged and decided to continue with a “neutral” policy stance.
Calling it a “very wrong decision”, Pai argued that there is a disconnect between current inflation trends and the cost of borrowing.
Inflation-Rate Disconnect
Inflation in India has shown consistent moderation, with the RBI lowering the FY26 projection to 2.6% for FY26 from the earlier projected 3.1%. A higher interest rate is needed to tame inflation, which is not the case currently, making Pai question RBI’s logic.
However, RBI’s decision comes against the Trump tariff moves that are still unfolding and as it assesses the impact of the already announced 100 bps rate cut in the first half of 2025.
“The MPC noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out. The trade-related uncertainties are also unfolding,” Governor Sanjay Malhotra said in his speech today. Therefore, he added that the MPC considered it prudent to wait for the impact of policy actions to play out and greater clarity to emerge before charting the next course of action.
Pai, however, pointed out that the cost of funds is high despite lower inflation. Such an environment discourages borrowing and investment. “Higher investments need lower interest rates when inflation is down,” Pai added.
Pai warns that India risks becoming a rent-seeking economy — one where wealth is increasingly accumulated through interest income rather than through production or entrepreneurship.
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