Will RBI Go For Rate Cut In Next Meeting?

With food inflation easing and the monsoon being favourable, this change signals optimism for India’s inflation outlook. Globally, trends such as the US Federal Reserve’s rate cut and easing monetary policies further support this shift - Anu Aggarwal, Head (Corporate Banking), Kotak Mahindra Bank

Mumbai: The Reserve Bank of India’s shift to a ‘neutral’ stance has marked a pivotal step in its approach, providing more flexibility in navigating the evolving economic conditions. RBI’s policy stance from ‘withdrawal of accommodation’ to ‘neutral’ at its MPC has been welcomed by experts. This was observed during the opinion which was compiled by Bizz Buzz.

Anu Aggarwal, Head (Corporate Banking), Kotak Mahindra Bank, said: “With food inflation easing and the monsoon being favorable, this change signals optimism for India’s inflation outlook. Globally, trends such as the US Federal Reserve’s rate cut and easing monetary policies further support this shift.”

By adopting a more neutral position, RBI is positioning itself to respond dynamically to future developments, while continuing to foster economic stability and long-term business confidence, he added.

Aditi Nayar, Chief Economist and Head (Research and Outreach), Icra, says: “Today’s MPC review prudently prioritised 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 materialise. In our view, the Indian rate cut cycle will be fairly shallow, restricted to 50 bps over two policy reviews, she said.

As a first step towards getting closer to rate accommodation, RBI changes its stance to ‘neutral’ from withdrawal of accommodation. The policy is, however, unchanged at 6.5 per cent. Nevertheless, the vote was 5-1 for keeping policy unchanged. RBI noted that current and estimated dynamics of growth-inflation balance is driving the change in stance. Within this RBI’s growth and inflation target for FY25 is unchanged at 7.2 per cent and 4.5 per cent, said Anitha Rangan, Economist, Equirus.

However, we would think that next move is unlikely to be a rate cut, at this juncture, RBI will only keep its options open towards accommodation. The hawkish points emanate from the points around a) Inflation is on a declining path although there is some distance to cover with upside risks from geo-politics and weather while the agricultural outlook is buoyant and positive for food prices. b) RBI keeps its guard on noting that ‘we have to be very careful of opening the gate and need to keep the horse to a tight leash’ and mentioning that RBI can’t be complacent with the rapidly evolving global conditions, she said.