RBI keeps interest rates steady, shifts to neutral stance

Investing.com– The Reserve Bank of India left interest rates unchanged as widely expected on Wednesday, but shifted to a neutral stance, opening the door for a potential rate cut in the coming months. 

The RBI kept its policy repo rate at 6.5% for a tenth consecutive meeting, with five out of six members of the rate-setting committee voting in favor of a hold. 

RBI Governor Shaktikanta Das said that the central bank will still keep a close watch on inflation, and that inflation was set to remain sticky in the coming months. 

But he struck a less hawkish tone than seen in prior meetings, especially as the RBI’s shift to a neutral stance signaled that the bank was now moving away from a sustained withdrawal of accommodative policy. 

“The prevailing and the expected inflation growth balance have created congenial conditions for a change in monetary policy stance to neutral. Even as there is greater confidence in navigating the last mile of disinflation, significant risks to inflation from adverse weather events, geopolitical conflicts and the increase in certain commodity prices continue to stare at us,” Das said in a livestream.

A Reuters poll conducted before the meeting showed some economists positioning for the RBI to shift to a neutral stance, and that the RBI could potentially cut rates by 25 basis points during its December meeting. 

The RBI’s Das said India’s growth story “remained intact,” and that while inflation had fallen in recent months, it was still expected to remain above the RBI’s 4% annual target. But he noted that risks were evenly balanced. 

Das said the CPI print for September was expected to see a “big jump,” largely due to food prices. But inflation is expected to trend lower in the coming quarters, citing a good crop yield.

Despite high rates and sticky inflation, India is still among the fastest-growing economies in the world, logging around 7% of gross domestic product growth for three years running. But this growth is now expected to moderate, especially amid softening conditions in global economies.