 "Shaktikanta Das, Shaktikanta, RBI Governor")
RBI Governor Shaktikanta Das STATED THAT MPC remains focused on bringing headline inflation down to 4 per cent (Photo: Shutterstock)
The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday unanimously decided to change the monetary policy stance to neutral while keeping the policy rate – the repo rate – unchanged for the tenth consecutive time at 6.50 per cent.
RBI governor Shaktikanta Das stated that despite the change in stance, the MPC remains focused on bringing headline inflation down to 4 per cent on a durable basis.
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“Given the prevailing and expected inflation-growth dynamics, which are well-balanced, the MPC decided to change the monetary policy stance from withdrawal of accommodation to ‘neutral’ and remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth,” the monetary policy statement released by the RBI said, adding that the change in stance provides flexibility to the MPC while enabling it to monitor the progress on disinflation, which is still incomplete.
According to Das, the prevailing and expected inflation-growth balance has created favourable conditions for a change in monetary policy stance to neutral.
“Even as there is greater confidence in navigating the last mile of disinflation, significant risks – I repeat, significant risks – to inflation from adverse weather events, escalating geopolitical conflicts, and the recent increase in certain commodity prices continue to pose challenges. The adverse impact of these risks cannot be underestimated,” he highlighted.
After increasing the repo rate by 250 basis points (bps) to 6.50 per cent between May 2022 and February 2023, the domestic rate-setting panel kept the repo rate unchanged in the previous nine policy review meetings.
Meanwhile, the yield on government bonds softened following the MPC’s decision to change the stance to neutral.
The yield on the benchmark 10-year government bond fell below the psychologically crucial 6.80 per cent mark in early trade after FTSE Russell announced that it will include Indian bonds in its indices.
The benchmark yield fell to 6.74 per cent, against the previous close of 6.81 per cent.
The RBI projects real GDP growth for FY25 at 7.2 per cent, with Q2 at 7.0 per cent, Q3 at 7.4 per cent, and Q4 at 7.4 per cent. Real GDP growth for Q1 FY26 is projected at 7.3 per cent. Similarly, CPI inflation for FY25 is projected at 4.5 per cent, with Q2 at 4.1 per cent, Q3 at 4.8 per cent, and Q4 at 4.2 per cent. CPI inflation for Q1 FY26 is projected at 4.3 per cent.
Global index provider FTSE Russell will include India’s sovereign bonds in its Emerging Markets Government Bond Index starting September 2025, potentially attracting significant foreign investment into Indian bonds. After being on FTSE’s watch list for three years, Indian bonds are set to comprise 9.35 per cent of the index on a market-value-weighted basis. The total market value of the index is $4.7 trillion, according to FTSE.
“The yield fell in the morning after the inclusion, but the market was focused on the MPC,” said a dealer at a state-owned bank. “The change in stance has now led to further positive sentiment, and there are rising speculations about a rate cut in December,” he added.
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First Published: Oct 09 2024 | 11:00 AM IST
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