RBI MPC Meet: What Market Analysts Make Of Shift To Neutral Stance

The Reserve Bank of India's Monetary Policy Committee kept the repo rate unchanged at 6.5% for the tenth consecutive meeting on Wednesday. However, its stance shifted to neutral, indicating potential for rate cuts in the future.

The committee decided to unanimously change the stance to neutral and remain unambiguously focused on a durable alignment of inflation to the target while supporting growth, Governor Shaktikanta Das said in his speech.

Analysts say its important to to wait for more favourable data before a rate cut—widely anticipated in December. The RBI's cautious approach has been agreeable.

Jayesh Mehta, vice chairman and chief executive officer at DSP Finance, noted the importance of waiting for more favourable data before a rate cut is implemented. While inflation is under control and growth remains steady, the RBI is likely waiting for both inflation and GDP figures to ease by December, he said.

Katrina Ell, director of economic research at Moody’s Analytics, echoed this sentiment, noting that the neutral stance has set the stage for a possible cut later in the year. 

However, she cautioned against certainty, pointing out the volatility in global markets, especially in light of rising oil prices due to geopolitical tensions. “There are upside risks to food inflation, given weather impacts and also escalations of violence in the Middle East disrupting oil prices,” Ell added.

While inflation is largely under control, it was prudent for the RBI to maintain caution in the current environment, according to Jaideep Iyer, head of strategy at RBL Bank. “The governor is being cautious on rates due to stable growth and macroeconomic factors, like fiscal consolidation and geopolitical risks,” Iyer said. 

He also pointed out that keeping rates unchanged benefits the banking sector.

The change in stance is comforting but the RBI will be on the lookout for upcoming data—festive seasons, macro factors, crude, private capex—all of which has already started, said Venkatraman Venkateswaran, chief financial officer, Federal Bank.