RBI Maintains Steady Interest Rates and Adopts Neutral Stance

The Reserve Bank of India (RBI) maintained its interest rates at 6.5% during its latest meeting, consistent with expectations. However, the central bank has shifted to a neutral stance, potentially paving the way for a rate cut in the near future.

This marks the tenth consecutive meeting where the policy repo rate has remained unchanged, with five of the six members on the rate-setting committee voting to hold rates steady. RBI Governor Shaktikanta Das emphasized that the bank will continue to monitor inflation closely, anticipating that inflation will remain persistent in the upcoming months.

Governor Das adopted a less hawkish tone compared to previous meetings, indicating that the transition to a neutral policy stance suggests a departure from a prolonged period of withdrawing accommodative measures. He stated, “The prevailing and the expected inflation growth balance have created favorable conditions for a change in monetary policy stance to neutral. There is growing confidence in navigating the final stages of disinflation, although significant risks to inflation persist from adverse weather, geopolitical tensions, and rising prices of certain commodities.”

A recent survey highlighted that some economists expected this shift in stance, suggesting that the RBI might consider a 25 basis point rate cut at its December meeting. According to Das, India’s growth trajectory remains robust, with inflation having decreased in recent months, although it is projected to stay above the RBI’s target of 4% annually. He acknowledged that risks are balanced on both sides.

Das indicated that the Consumer Price Index (CPI) for September is expected to witness a “substantial increase,” primarily driven by food prices. However, he projected that inflation would likely decline in the coming quarters due to favorable crop yields.

Despite elevated interest rates and persistent inflation, India continues to be one of the fastest-growing major economies, achieving around 7% GDP growth for three consecutive years. Nonetheless, this growth rate is expected to moderate, especially considering the softening conditions in global economies.