India’s central bank holds rates as expected, shifts stance to ‘neutral’

The Reserve Bank of India (RBI) kept its key interest rate unchanged on Wednesday, as widely expected, but tweaked its policy stance to “neutral,” opening the door for rate cuts amid early signs of a growth slowdown in the economy.

The Monetary Policy Committee, which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a tenth straight policy meeting.

The committee, however, changed its policy stance to “neutral” from “withdrawal of accommodation.”

Rates were predicted to be kept on hold by 80% of the 76 economists polled by Reuters. The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%.

Annual retail inflation remained below the central bank’s target of 4% for a second consecutive month, clocking in at 3.65% in August but higher than the revised 3.60% in July and economists’ forecast of 3.5%.

While the recent escalation of tensions in the Middle East has shrouded the outlook on the inflation trajectory, concerns about economic growth have also begun to emerge.

High-frequency indicators such as the manufacturing PMI slowed to an eight-month low in September, while the services PMI eased to a 10-month trough, latest data showed. India’s overall growth slowed to 6.7% in the June quarter.