New Delhi, Oct 9: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday, October 9, kept the repo rate unchanged at 6.5 per cent for the tenth consecutive meeting, with a majority vote of 5-1. The MPC, however, unanimously decided to change its stance to “neutral” from the earlier “withdrawal of accommodation”.
Meaning of RBI’s ‘neutral’ stance
A neutral stance indicates that the RBI maintains flexibility in adjusting policy rates based on prevailing economic conditions. This means that the central bank is open to either increasing or decreasing interest rates, depending on data related to inflation and economic growth. The neutral stance is generally adopted when both inflation control and economic growth are given equal priority, allowing for adjustments in either direction as new information arises.
The MPC began its three-day meeting on October 7 to discuss the fourth bi-monthly monetary policy for FY25.
RBI’s GDP projection
Governor Das stated that India’s real GDP grew by 6.7 per cent in Q1. For FY25, the RBI kept its gross domestic product (GDP) projection unchanged at 7.2 per cent. The Q2 projection also remained at 7.2 per cent, as before. However, the projection was raised for Q3 to 7.4 per cent from 7.3 per cent and for Q4 to 7.4 per cent from 7.2 per cent.
For Q1 of FY26, the RBI expects GDP growth at 7.3 per cent, up from the earlier 7.2 per cent.
Q1FY25: 6.7 per cent Q2: 7.2 per cent Q3: 7.4 per cent Q4: 7.4 per cent
Q1FY26: 7.3 per cent
Das highlighted that manufacturing is showing signs of slowing down while the services sector remains robust.
RBI’s inflation projection
The RBI Governor said that the MPC decided to remain “watchful” of the evolving outlook in the coming months. “The global economy has remained resilient since the last meeting of the MPC in August,” he said.
The MPC projected inflation at 4.5 per cent for FY25, the same as previously forecast. On a quarterly basis, the Consumer Price Index (CPI) inflation forecast is projected at 4.1 per cent in Q2, expected to rise to 4.8 per cent in Q3, then 4.2 per cent in Q4, and 4.3 per cent in Q1 of FY26.
CPI inflation projections:
Q2: at 4.1 per cent
Q3: Expected to rise to 4.8 per cent
Five out of six MPC members voted in favour of maintaining the current rate.
Consequently, Das announced that the standing deposit facility (SDF) rate was kept at 6.25 per cent, while the marginal standing facility (MSF) rate and the bank rate remained at 6.75 per cent.
“Domestic growth has sustained its momentum, and the global economy has remained resilient since our last meeting. However, downside risks persist due to geopolitical conflicts, financial market volatility, and elevated public debt. On a positive note, world trade is showing signs of improvement,” the RBI Governor said in his monetary policy statement.
A neutral stance allows the RBI to adjust interest rates according to inflation trends, unlike the previous approach of withdrawing accommodation, which ruled out the option of cutting rates.
