RBI Monetary Policy: MPC Keeps Repo Rate Unchanged, Changes Stance To Neutral

India's Monetary Policy Committee, led by RBI Governor Shaktikanta Das, kept the benchmark repo rate unchanged for the tenth straight meeting, but changed the stance to neutral, possibly paving the way for future rate cuts.

After the review, the MPC decided the following on lending rates:

• To keep the repo rate unchanged at 6.5% with a 5:1 majority.

• The standing deposit facility rate, pegged 25 basis points below the repo rate, is at 6.25%.

• The marginal standing facility rate, which is 25 basis points above the repo rate, is 6.75%.

The prevailing and expected inflation-growth balance have created congenial conditions for a change in monetary policy stance to neutral, Governor Das explained. "Even as there is greater confidence in navigating the last mile of disinflation, significant risks — I repeat significant risks — to inflation from adverse weather events, accentuating geopolitical conflicts and the very recent increase in certain commodity prices continue to stare at us," he cautioned. "The adverse impact of these risks cannot be underestimated."

No rate action, in conjunction with stance change to neutral with stress on being 'actively disinflationary' is indeed the RBI MPC's best bet to prep ground for start of a shallow easing cycle, possibly but not necessarily from December, said Madhavi Arora, lead economist at Emkay.

The MPC had raised the benchmark repo rate by 250 basis points in the last cycle before opting for a pause in April last year.

Inflation Outlook

• Inflation is expected to moderate in Q4 from the monsoons and agricultural output.

• Geopolitical conflicts continue to pose risks.

• Recent uptick in food prices if sustained can add to upside risks.

• Adverse climate events remain an upside risk to food inflation.

• Crude oil prices continue to be volatile on demand concerns and geopolitical tensions.

Growth Outlook

• India's growth story remains intact as its fundamental drivers — consumption and investment demand — are gaining momentum.

• Prospects of private consumption, the mainstay of aggregate demand, look bright on the back of improved agricultural outlook and rural demand.

• Sustained buoyancy in services would also support urban demand.

• Government expenditure of the centre and the states is expected to pick up pace in line with the Budget Estimates.

• Investment activity would benefit from consumer and business optimism, government's continued thrust on capex and healthy balance sheets of banks and corporates.