RBI sets tone for potential rate cut

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday, kept the repo rate unchanged at 6.5 per cent for the tenth consecutive meeting. Repo rate is the interest rate at which the RBI lends money to commercial banks. The unchanged repo rate means that EMIs will likely remain stable in the near term.

RBI Governor Shaktikanta Das said while they had gained greater confidence in achieving the final stage of disinflation, they would remain focused on the inflation target while supporting growth. “With a lot of effort, the inflation horse has been brought to the stable — closer to the target. We must keep the horse on a tight leash, so that we do not lose control. Going forward, we need to closely monitor the evolving conditions for further confirmation of the disinflationary impulses,” Das said. The MPC, however, unanimously decided to change its stance to ‘neutral’ from the earlier ‘withdrawal of accommodation’.

Why MPC stopped short of cutting rates

According to CRISIL Market Intelligence and Analytics, the RBI remains wary of supply shocks upending the durable decline in inflation. Geopolitical uncertainties and a rise in international prices of some commodities have added to the upside risks.

Likely next move

CRISIL anticipates a 25-basis-point reduction in the repo rate during the MPC’s policy review meeting in December, given food inflation is expected to ease after a healthy monsoon. CRISIL also expects GDP growth to moderate to 6.8 per cent this fiscal compared with RBI’s forecast of 7.2 per cent. Agricultural output is expected to improve during the kharif season. Prospects for the rabi season also are expected to improve because of a better water reservoir position.