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(Reuters) -The Reserve Bank of India (RBI) kept its key interest rate unchanged on Wednesday, as widely expected, but tweaked its policy stance to “neutral”, opening the door for rate cuts amid early signs of a growth slowdown in the economy.
The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a tenth straight policy meeting.
The committee, however, changed its policy stance to “neutral” from “withdrawal of accommodation”.
COMMENTARY
ANITHA RANGAN, ECONOMIST, EQUIRUS, MUMBAI
“The signal that the RBI is warming up or getting more comfortable towards accommodation is the point around transmission to credit markets being satisfactory.”
“However, at the juncture of elevated global volatility, perhaps RBI does not believe it to be opportune to cut rates.”
“They will await more certainty from external side (U.S. elections, Middle East tensions), before taking their first step which is not likely before March of 2025.”
SONAM SRIVASTAVA, FOUNDER, WRIGHT RESEARCH, MUMBAI
“The RBI’s decision reflects a measured approach to balancing inflationary risks and growth prospects.”
“While inflation has eased, the central bank’s caution stems from looming threats such as rising crude prices, uneven rainfall, and ongoing geopolitical tensions.”
ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURUGRAM
“Today’s MPC review prudently prioritized flexibility by changing the stance to neutral, in line with our expectations.”
“This has opened the door for a potential rate cut in December, if the lurking risks to inflation, both domestic and global, do not materialize.”
“In our view, the Indian rate-cut cycle will be fairly shallow, restricted to 50 bps over two policy reviews.”
TERESA JOHN, LEAD ECONOMIST, NIRMAL BANG, MUMBAI
“A rate cut in December seems increasingly likely should the second-quarter growth undershoot the RBI’s estimate. Nevertheless, we expect the rate cut cycle in India to be shallow.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“If domestic conditions evolve favourably over the coming months, a December rate cut is not off the table.”
“The RBI showed comfort on both the durable disinflation underway and transmission to the credit market, which aligns with their acceptance of easier liquidity conditions over the last few months.”
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA SECURITIES, MUMBAI
“The change of stance to neutral opens space for a December policy cut.”
“We also believe that RBI’s growth projection of 7.2% will see a disappointment amid softening demand conditions and weak government spending momentum.”
“As such, if the festive season disappoints, the probability of 50 bps cut in December cannot be ruled out.”
VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI
“Continued comfort on inflation, notwithstanding the near-term uncertainty on food prices, along with the recent buildup of concerns on global economic environment seems to have tilted the balance towards a shift in policy stance to neutral.”
“This hopefully paves way for an actual pivot in monetary policy in the next policy review in December, provided inflation moves along the projected trajectory.”
“Although the shift in stance to neutral boosts RBI’s policy flexibility, room for monetary easing in case of India remains limited compared to other economies.”
GAURA SENGUPTA, INDIA ECONOMIST, IDFC FIRST BANK, MUMBAI
“The change in stance indicates that policy space to ease rates could open up if food inflation moderates as supplies improve.”
“We maintain (our) expectation of a December rate cut by the RBI. By March 2025, we expect a cumulative rate cut of 50 bps.”
DEVENDRA KUMAR PANT, CHIEF ECONOMIST, INDIA RATINGS AND RESEARCH, GURUGRAM
“While the status quo on rates was on expected lines, the change in stance was contrary to our expectations.”
“The RBI governor in his speech has mentioned the risk of inflation can emanate from adverse weather events and rise in commodity prices due to global political situations.”
“(Future) rate action is more likely to be data driven.”
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“The Reserve Bank of India’s decision to hold rates while changing the stance to neutral is completely in line with our expectations.”
“The tone of the (RBI) governor remains fairly balanced, keeping further decisions data-dependent.”
“We continue to expect the onset of rate-easing from December with a 25 bps cut, but the scale of easing in this cycle is expected to be shallow with limited scope for back-to-back easing in each policy.”
(Reporting by Dimpal Gulwani and Yagnoseni Das, Nishit Navin, Hritam Mukherjee, Ashish Chandra, Aleef Jahan CS, Bharath Rajeswaran in Bengaluru, and Siddhi Nayak in Mumbai; Compiled by Dhanya Skariachan; Editing by Abinaya Vijayaraghavan)