RBI MPC Meet: Policy stance changed to ‘neutral’ from ‘withdrawal of accommodation’

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday kept its key lending rate (repo rate) unchanged for the 10th consecutive meeting. However, the RBI has changed its policy stance to ‘neutral’ from ‘withdrawal of accommodation’.

The decision to change the stance was taken unanimously.

A CNBC-TV18 poll had predicted the same. This was also in-line with what other market watchers and economists were expecting. The decision to keep the rates unchanged was taken with a 5:1 majority.

As per a CNBC-TV18 poll of 10 leading Indian economists, 90% of respondents expect the RBI to maintain the status quo, with only 10% forecasting a 25-basis-point cut.

This sentiment reflected a broader expectation of a rate cut later in the year, with 70% predicting a December 2024 reduction. A smaller 10% foresee this happening by February 2025.

“MPC left the repo rate unchanged in a 5-1 vote but, unanimously softened the monetary stance to ‘neutral’ from ‘withdrawal of accommodation’ earlier. Higher visibility of inflation reverting to target perhaps moved RBI’s hand on stance. We think shift to neutral stance opens doors for rate cuts potentially starting December, 2024. In our view, demand has softened of late, core inflation is near series low and fiscal policy is on a path of consolidation. Besides, Fed has commenced easing. Thus, gradual reversal in rate cycle may be on the cards,” said Kapil Gupta, Ezxecutive Director- Research, Nuvama Institutional Equities.

The RBI MPC also left the Marginal Standing Facility (MSF) and Standing Deposit Facility (SDF) rates unchanged at 6.75% and 6.25%, respectively.

Today’s meeting is being keenly watched as it is the central bank’s first following the US Federal Reserve’s 50-basis point rate cut.

The RBI MPC has kept the benchmark rate unchanged since April last year, at 6.50%.

Multiple factors, including a slowdown in economic activity and benign core inflation, are expected to prompt the central bank to soften its stance, according to an earlier report by Nuvama.

A weaker-than-expected GDP growth in the first quarter, continued slowing of high-frequency indicators in the second quarter, core inflation to the near record lows, and fiscal tightening could be the key reasons behind the move, the report added.

Additionally, the US Fed’s recent move which indicates an ease in the rates will influence apex bank’s decision, the report added.