The Reserve Bank of India kept interest rates unchanged and shifted its stance to “neutral”, indicating that it will cut interest rates in the future. | Wilnesh News

The Reserve Bank of India (RBI) on Wednesday kept key interest rates unchanged as widely expected but changed its policy stance to “neutral”, opening the door to a rate cut amid early signs of an economic slowdown.

The Monetary Policy Committee (MPC), which consists of three RBI and three external members, held its tenth consecutive policy meeting and kept the repo rate unchanged at 6.50%.

However, the committee changed its policy stance from “withdrawal of accommodation” to “neutral”.

The committee voted unanimously to change its stance but said they would continue to have a clear focus on sustained inflation consistency with the target while supporting growth.

Five-sixths of members voted to keep rates on hold.

Of 76 economists polled by Reuters, 80% expected to keep rates on hold. The last time the MPC adjusted interest rates was in February 2023, when the policy rate was raised to 6.50%.

India’s benchmark 10-year government bond yield fell 5 basis points to 6.7392% due to the change in stance. The Nifty 50 stock index rose 0.67% to 25,177.5 points; the S&P BSE Sensex rose 0.55% to 82,080 points. Benchmark indexes were up 0.2% each ahead of the policy decision.

this indian rupee Flat at 83.9450 Dollar.

Annual retail inflation fell below the central bank’s 4% target for the second consecutive month, at 3.65% in August, but was above July’s revised 3.60% and economists’ forecast of 3.5%.

The central bank expects inflation to average 4.5% in the 2024-25 fiscal year, unchanged from its forecast at the August meeting.

While the recent escalation in tensions in the Middle East has clouded the outlook for inflation’s trajectory, concerns about economic growth are also emerging.

The latest data shows that high-frequency indicators such as the manufacturing PMI slowed to an 8-month low in September, while the services PMI fell back to a 10-month low. India’s overall growth slowed to 6.7% in the second quarter.

The central bank expects GDP to grow by 7.2% this fiscal year.

Announcing the interest rate decision, Reserve Bank of India Governor Shaktikanta Das said the current and expected balance between inflation and growth creates conditions for a shift in the stance of monetary policy.

Das said there is growing confidence in the last mile of deflation, while adding that significant risks remain from adverse weather conditions, geopolitical conflicts and recent rise in certain commodity prices.