Reserve Bank of India Governor Shaktikanta Das on October 9 said the monetary policy committee decided to keep key policy rates unchanged for a tenth consecutive meeting amid inflationary pressures and announced change in policy stance to 'neutral' from 'accommodation', thus opening the door for rate cuts.
Das' speech came amid expectations of a status quo on interest rates in view of inflationary concerns and the possibility of a flare-up in the Middle East crisis that could jack up commodity prices.
The central bank has kept the repo or short-term lending rate unchanged at 6.5 percent since February 2023, and experts think some easing could only be possible in December.
"We want to see off the current hump in inflation before considering next move on rates," said RBI Deputy Governor Michael Patra says in post-policy press conference.
The government has tasked the central bank to ensure that Consumer Price Index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side.
In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in the subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.
Highlights from Shaktikanta Das' speech:
* MPC considered it appropriate to change stance to neutral and remain unambiguously focused on bringing inflation to target durably
* Food inflation pressures could see some easing later in FY25
*The RBI kept its FY25 real GDP growth at 7.2 percent YoY and CPI inflation at 4.5 percent YoY
* Developments since August indicate progress in durable inflation targets
* Optimism on inflation is subject to shocks on weather conditions
*Inflation horse has been brought to the stable within the tolerance band. Have to be careful about opening the gate.
*Banks, NBFCs not permitted to levy foreclosure charges or pre-penalty on loans to micro and small enterprises.
* Transmission to the credit market has been satisfactory.
*Per transaction limit in UPI 123Pay to be increased from Rs 5,000 to Rs 10,000. UPI Lite wallet limit increased from Rs 2,000 to Rs 5,000.
* RBI is closely monitoring incoming data on credit cards, MFI loans and unsecured loans.
* Banks and NBFCs need to give continued attention to inoperative accounts, mule accounts, cybersecurity landscape and a few other factors.
* NBFCs have registered an impressive growth in the last few years. Some NBFCs are aggressively growing without building strong underwriting practices.
* There are certain NBFCs where retail targets are driving growth rather than the actual demand.
* Self correction by NBFCs would be the desired option, though the RBI is keeping a close watch and won't hesitate to take action if required.
* FPI flows have seen a turnaround from outflows of $4.2 billion to inflows of $19.2 billion between June-October this year
* FDI flows remain strong. India's forex reserves have crossed milestone of over $700 billion
* RBI will continue to be nimble and flexible in liquidity management operations
* Retail inflation in September likely to see big jump due to unfavourable base, pick up in food price momentum
* Money market rates, deposit and lending rates move in tandem with policy rate.
* We have greater confidence that inflation is moderating, but acutely aware there are significant risk.
* We have changed the stance because growth and inflation are well poised, the balance is well poised. The timing is appropriate for a stance change.
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