The MPC also decided unanimously to change the ‘withdrawal of accommodation’ stance to ‘neutral’ with focus on growth.
Rad More: Catch all RBI Monetary Policy Meeting live updates here
India’s economic landscape has been characterised by strong growth in recent quarters. According to the State Bank of India (SBI), domestic conditions remain paramount in shaping the RBI’s monetary policy decisions. With India’s growth potentially higher than its long-term potential output, the report argues that maintaining the current interest rate levels is justified. “Domestic conditions are paramount, and with robust growth, higher than potential output, the case for a pause exists,” the report said.
The growth rate for the first quarter of FY2025 was 6.7%, slightly below the RBI’s projection of 7%. While still indicative of strong growth, this dip has raised concerns. Moreover, key indicators such as vehicle sales, cement volumes and GST collections have seen a drop, signalling a cooling of economic activity.
One of the key reasons the RBI was expected to refrain from cutting rates was inflation. Though inflation has softened from its peak, the RBI remains cautious about its durability. The central bank is also wary of global risks, such as rising geopolitical tensions in West Asia, which could drive up oil prices and exert pressure on domestic inflation.As per an ET (Economic Times) poll of economists, 80% of respondents were anticipating the RBI to keep the repo rate unchanged, marking the tenth consecutive meeting with no rate cuts. “In our base case, we expect two rate cuts this fiscal, with the first one in October unless risks arising from the geopolitical situation push the rate cut decision. Lower inflation this fiscal compared to the last should make way for easing monetary policy. For the fiscal, good monsoon and healthy kharif sowing should bring down food inflation, and hence the headline, compared with the past fiscal,” said CRISIL’s Principal Economist Dipti Deshpande had said.
The October meeting was the first one for the newly appointed external members of the MPC — Ram Singh, Saugata Bhattacharya, and Nagesh Kumar.
While the domestic economy remains the central focus, global developments cannot be ignored. Notably, the US Federal Reserve recently started cutting rates, a move that was expected to influence the RBI’s approach. Historically, the RBI’s monetary policy has been shaped by global trends, especially those originating in major economies like the US and the Eurozone. These trends, coupled with a tight fiscal policy, suggest that domestic demand is weakening, casting doubt on whether India can maintain its growth momentum.