The Reserve Bank of India (RBI) did not make any change in its policy rate i.e. repo rate on Wednesday, but has taken the first step towards cutting interest rates. The central bank has reduced its relatively aggressive policy stance to ‘neutral’. According to PTI news, the panel has unanimously decided to change the policy stance to ‘neutral’. The Monetary Policy Committee, comprising three RBI officials and an equal number of new external members, has raised the benchmark repurchase or repo rate – which controls the interest rate on home, auto, corporate and other loans – for the 10th consecutive policy meeting. 6. Voted five-to-one to keep it at 5 percent. Interest rates were last changed in February 2023, when they were raised from 6.25 percent to 6.5 percent.
What do experts say
Suman Chaudhary, chief economist and executive director of Acute Ratings & Research, said that although the MPC has not given any clear guidance on cutting rates, it is likely that it will cut rates in December this year or February 2025, provided inflation remains stable. The economic environment should remain stable and core inflation should remain consistently within 4.5 percent over the next few months. Aditi Nair, chief economist and head of research and outreach at ICRA Ltd, said the MPC review has prioritized flexibility by changing the stance. This opens the way for a possible rate cut in December 2024 if latent risks to both domestic and global inflation do not materialize.
In our view, the Indian rate cut cycle will be quite shallow, limited to 50 basis points over the two policy reviews.
Food inflation may reduce
Reserve Bank of India Governor Shaktikanta Das said the committee has changed stance, but the focus will remain clear on keeping inflation within target while supporting growth. He said food inflation may ease in the coming months, with core inflation excluding volatile food and energy costs reaching its lowest level. India’s economic growth outlook remained intact, with private consumption and investment also increasing. The change in stance signals the possibility of an interest rate cut in the upcoming MPC meetings, with the next scheduled to be held in early December.
Kept its inflation forecast unchanged
The RBI will join other central banks around the world in the policy shift, which was led by the US Federal Reserve by easing rates last month. Annual retail inflation remained below the central bank’s 4 per cent target for the second consecutive month in September and the RBI expects it to pick up again this month, mainly due to the base effect. The RBI kept its inflation forecast unchanged at 4.5 per cent for the 2024-25 (April 2024 to March 2025) financial year. It also kept its GDP forecast unchanged at 7.2 percent.