The Reserve Bank of India (RBI) has left the benchmark repo rate unchanged at 6.5% for the tenth consecutive time but kept everyone hopeful of a shift towards lowering of interest rates if external factors and inflation turn more favourable.

The six-member rate-setting monetary policy committee (MPC) changed its policy stance to ‘neutral’ from ‘withdrawal of accommodation’, implying that the door could open to interest-rate cut in upcoming policies, subject to certain conditions.

There are speculations on when the softening of interest rates would happen to support faster growth, with many economists speculating with greater certainty that it would happen in this financial year. Some are even expecting it in the next bi-monthly monetary policy.

Says Aditi Nayar, chief economist at ICRA, “Today's MPC review prudently prioritised flexibility, by changing the stance to neutral, in line with our expectations. This has opened the door for a potential rate cut in December 2024, if the lurking risks to inflation, both domestic and global, do not materialise. In our view, the Indian rate cut cycle will be fairly shallow, restricted to 50 bps over two policy reviews."

RBI Governor Shaktikanta Das has not explicitly mentioned of the possibility of a rate cut but has positioned for ‘flexibility’ in upcoming policies. “We have changed our policy stance because there is a well poised balance between growth and inflation. The timing is appropriate for a stance change. Neutral stance gives optionality and flexibility to make decisions,” he said, while announcing the fourth bi-monthly monetary policy for FY25. 

The SDF rate is unchanged at 6.25% and MSF rate at 6.75%. The bank rate is unchanged at 6.75%. 

The MPC members voted by 4:2 majority to maintain status quo.

The RBI has retained its GDP growth estimate at 7.2% and retail Inflation forecast at 4.5% for FY25.

GDP growth forecast retained at 7.2% for FY25.

The quarterly GDP growth estimates are:

•    Q2FY25: Cut to 7% from 7.2%

•    Q3FY25: Raised to 7.4% from 7.3%

•    Q4FY25: Raised to 7.4% from 7.2%

•    Q1FY26 GDP growth estimates raised to 7.3% from 7.2%

 CPI Inflation forecast retained at 4.5% for FY25.

The quarterly inflation estimates are:

•    Q2FY25: Cut to 4.1% from 4.4%

•    Q3FY25: Raised to 4.8% from 4.7%

•    Q4FY25: Cut to 4.2% from 4.3%

•    Q1FY26 CPI inflation forecast cut to 4.3% from 4.4%