The Reserve Bank of India’s (RBI) monetary policy committee (MPC) decision to change policy stance from “withdrawal of accommodation” to “neutral” could be a pre-cursor for repo rate cut in near term, with some bankers and economists expecting that MPC may cut repo rate by 25 basis points (bps) as early as December. The MPC today maintained repo rate at 6.50 per cent for the 10th consecutive time.
“The status quo on the repo rate is in line with expectations and the decision is backed by solid economic growth projections (FY25 projected at 7.2 per cent). The change in monetary stance to neutral, stemmed from the MPC’s confidence in reining inflation within its target range. This should also bring cheer to the markets as it is likely to serve as a precursor to rate cuts,” said Zarin Daruwala, CEO, India and South Asia, Standard Chartered Bank.
The MPC today retained its GDP growth projection for FY25 at 7.2 per cent and inflation forecast at 4.5 per cent for the current fiscal. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said the tone of the RBI Governor Shaktikanta Das remains fairly balanced, keeping further decisions data dependent.
“We continue to expect the onset of rate easing from December with a 25 bps cut but the scale of easing in this cycle is expected to be shallow with limited scope for back to back easing in each policy,” she said.
‘Affirmative front-loaded policy’
Umesh Revankar, Executive Vice Chairman at Shriram Finance, said the RBI’s decision to change policy stance raises hopes of a possible rate cut in the near future. A resilient domestic economy and an overall optimistic outlook fuelled by private consumption, a favourable Kharif season and a positive outlook for the rabi season could be key factors that will help reduce inflation in the coming months.
“The Governor’s guidance to NBFCs (non-banking finance companies) marks a critical moment for the sector’s growth and likely lower cost of funds is going to benefit NBFC sector and ultimately the customers,” he added.
CS Setty, State Bank of India Chairman, said today’s MPC statement is a clear recognition of robust growth and an inflation trajectory that is trending down. The shift in stance to neutral, he said, is an affirmative front-loaded policy move that will ensure RBI remains nimble footed to align inflation with the 4 per cent target.
Pralay Mondal, MD & CEO of CSB Bank, says change in policy stance may alleviate some stress in the deposit space. Keeping the repo rate unchanged among geopolitical uncertainties is very prudent, he said, and the RBI enabling account recognition facilities on money transfer will certainly help curb prevent any misuse of account by fraudsters. ENDS