Change in RBI policy stance signals 25 bps rate cut soon, industry upbeat

Change in RBI policy stance signals 25 bps rate cut soon, industry upbeat

New Delhi, Oct 9 : The change in the RBI's stance to "neutral" from "withdrawal of accommodation" has given a signal about the interest rates reversing downwards in the next few quarters, leading industry chambers and experts said on Wednesday.

Describing the RBI monetary policy review as "realistic and pragmatic", Assocham said the change in stance signals an impending rate cut, even as the Monetary Policy Committee (MPC) kept the policy repo rates unchanged at 6.5 per cent for now.

"The change in stance to 'neutral' from the withdrawal of accommodation should be seen as a positive development pointing towards the RBI’s flexible monetary policy to be driven by the unfolding domestic and global events," Assocham Secretary General Deepak Sood said.

While the domestic economic landscape looks promising in the wake of inflation moderating below four per cent and consumer demand set to further pick up in the ongoing festive season, geo-political events need to be monitored, as rightly pointed out by RBI in the monetary policy statement.

Assocham agreed with an optimistic assessment of the central bank with regard to projected overall GDP growth of 7.2 per cent for fiscal 2024-25, on the back of brighter prospects in agriculture and the consequent pick up in rural demand.

''Signs of improving rural demand are already visible in some of the high-frequency data like tractor and two-wheeler sales and FMCG sector," said Sood.

PHDCCI President Sanjeev Agrawal said they anticipate that the MPC will reduce policy rates in the coming times. "MPC's decision to shift the monetary policy stance to neutral with focus on durable alignment of inflation, with the strong growth will have a positive impact and boost trade and industry," he said.

According to CareEdge Ratings Chief Economist Rajani Sinha, with the change in stance, the MPC has given itself the flexibility to cut rates going forward, depending on how the domestic and global conditions pan out for CPI inflation.

"We feel that there are chances of a shallow rate cut of 25 bps in the December policy, followed by another 25 bps in the March policy, provided food inflation moderates," Sinha noted.

Crisil Chief Economist Dharmakirti Joshi said that the outsized US Federal Reserve rate cut of 50 basis points in September marked a complete and decisive turn in monetary policy among major central banks. "Yet, for emerging market peers, domestic inflation concerns are at the front and centre. We anticipate a 25-basis-point reduction in the repo rate during the MPC's policy review meeting in December, in response to the expectation that food inflation will decline," he maintained.

Globally, risks and uncertainties persist, with escalating tensions in the Middle East, weather uncertainties and the outcome of US elections in focus. "These are the reasons why the RBI took a cautious approach and kept its powder dry," said Joshi.

(The content of this article is sourced from a news agency and has not been edited by the ap7am team.)

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