RBI's Neutral Stance Sets Stage for Future Rate Cuts

The RBI has kept the benchmark interest rate at 6.5% unchanged but shifted to a 'neutral' policy stance, potentially enabling future rate cuts. This comes despite global rate reductions by other nations. Analysts predict possible rate cuts in late 2024 should inflation remain controlled and GDP growth continue.

The Reserve Bank of India (RBI) has chosen to keep its benchmark interest rate steady at 6.5% while adopting a 'neutral' policy stance, hinting at potential rate cuts soon, as observed by experts on Wednesday. This policy shift from 'withdrawal of accommodation' could pave the way for interest rate relief.

This decision comes in the wake of the US Federal Reserve's recent rate cut by 50 basis points and similar actions from other developed nations, but the RBI has opted for caution. RBI Governor Shaktikanta Das, in announcing the fourth bi-monthly monetary policy for the financial year, emphasized the commitment to maintaining the status quo on rates since February 2023.

Economic experts, including Abheek Barua from HDFC Bank and Ajay Kumar Srivastava from Indian Overseas Bank, highlighted the balanced approach to fostering growth while managing inflationary pressures. The move is expected to encourage investments and potentially lower borrowing costs by 2025. Meanwhile, Sadaf Sayeed of Muthoot Microfin noted that the decision could stimulate domestic investments, with GDP growth anticipated at 7.2% for FY25.

(With inputs from agencies.)