MUMBAI: In what is being seen as a ‘pivotal’ move, RBI announced a change in its monetary policy stance from withdrawal of accommodation to neutral, even as it kept the policy repo rate unchanged at 6.5% for the tenth successive time in its latest monetary policy committee meeting.
A ‘withdrawal of accommodation’ stance indicates a position where RBI makes money less easily available to keep a check on prices.A neutral stance, on the other hand, indicates that the monetary policy is neither trying to speed up nor slow down spending. For borrowers, this could mean more festive offers on some borrowings even as deposit rates may plateau.
The change in stance – first in nearly 30 months – is seen as a step towards the softening of rates. “With both inflation and growth well balanced, there was no justification to continue with the withdrawal of accommodation. We have achieved what we wanted to achieve. While we have greater confidence that inflation is moderating, considering the significant risks that lie ahead of us, it will be inappropriate to specifically talk in terms of the timing of a rate cut,” RBI governor Shaktikanta Das said.
The decision to pause received a 5-1 majority vote, with all members, including the newly-appointed external members, voting unanimously to change the stance. Consequent to the MPC’s decision, the standing deposit facility rate remains at 6.25%, while the marginal standing facility and bank rate continue at 6.75%.
“Real GDP grew by 6.7% in Q1 FY25, led by a revival in private consumption and improvement in investment. The share of investment in GDP reached its highest level since 2012-13. High-frequency indicators available so far suggest that domestic economic activity continues to be steady,” Das said while announcing the MPC’s decision, adding that he didn’t believe that interest rates were at a level where they were impinging on growth. “We believe RBI has placed the horse before the cart in its approach. As an inflation targeter, RBI emphasised upside inflation risks more than downside growth risks… the central bank seems to be sequencing its moves carefully, starting off with a softening of stance. We believe the next move will be a 25 basis points rate cut in the Dec meeting,” Pranjul Bhandari, an economist with HSBC, said.
