India central bank holds rates, shifts stance to 'neutral' signaling rate cuts ahead

The Reserve Bank of India (RBI) kept its key interest rate unchanged on Wednesday as widely expected, but changed its policy stance to "neutral", opening the door for rate cuts amid early signs of a slowdown in the economy.

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

The committee, however, changed its policy stance to "neutral" from "withdrawal of accommodation".

The committee voted unanimously to change the stance but said they will remain unambiguously focused on the durable alignment of inflation to target while supporting growth.

Five out of six members vote in favor of holding rates.

Rates were predicted to be kept on hold by 80% of the 76 economists polled by Reuters. The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%.

India's benchmark 10-year bond yield fell 5 basis points to 6.7392%, on the change in stance. Equity index Nifty 50 was up 0.67% at 25,177.5 points, while the S&P BSE Sensex added 0.55% to 82,080. The benchmarks were up 0.2% each ahead of the policy decision.

The Indian rupee was flat at 83.9450 against the dollar.

Annual retail inflation remained below the central bank's target of 4% for a second consecutive month, clocking in at 3.65% in August but higher than the revised 3.60% in July and economists' forecast of 3.5%.

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

While the recent escalation of tensions in the Middle East has shrouded the outlook on the inflation trajectory, concerns about economic growth have also begun to emerge.

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