India cenbank holds rates, shifts stance to ‘neutral’, signals rate cuts ahead By Reuters

By Swati Bhat and Sudipto Ganguly

MUMBAI (Reuters) – The Reserve Bank of India (RBI) kept its key interest rate unchanged on Wednesday, as expected, but changed its policy stance to “neutral”, opening the door to rate cuts on amid early signs of a slowing economy.

The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for the tenth consecutive policy meeting.

However, the committee changed its policy stance to “neutral” from “withdrawal of accommodation”.

The committee voted unanimously to change the stance, but said they would focus unequivocally on the sustainable alignment of inflation to the target while supporting growth.

Five out of six members vote in favor of holding the installments.

An estimated 80 percent of the 76 economists polled by Reuters kept rates on the rise. The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%.

India’s benchmark yield fell 5 basis points to 6.7392% following the change in position. The Nifty 50-share index was up 0.67% at 25,177.5 points, while the S&P was up 0.55% at 82,080. Benchmarks rose 0.2 percent each ahead of the policy decision.

The Indian rupee remained steady at 83.9450 against the dollar.

Annual retail inflation remained below the central bank’s 4% target for a second straight month, coming in at 3.65% in August, but higher than July’s revised 3.60% and economists’ forecast of 3.5%.

The central bank expects inflation to average 4.5% in the 2024-25 financial year, unchanged from the forecast provided at its August meeting.

While the recent escalation of tensions in the Middle East has clouded the outlook for the trajectory of inflation, concerns about economic growth have also begun to emerge.

High-frequency indicators such as the manufacturing PMI slowed to an eight-month low in September, while the services PMI fell to a 10-month low, the latest data showed. India’s overall growth slowed to 6.7% in the June quarter.

The central bank expects GDP growth in the current financial year to 7.2%.

The current and expected balance between inflation and growth has created conditions for a change in the stance of monetary policy, Reserve Bank of India Governor Shaktikanta Das said in announcing the rate decision.

There is more confidence in the last mile of disinflation, Das said, while adding that significant risks remain due to adverse weather conditions, geopolitical conflicts and the recent rise in commodity prices.