Wed Oct 09 05:42:04 UTC 2024: ## RBI Holds Rates Steady, Shifts Stance to ‘Neutral’ Amidst Growth Concerns

**Mumbai, India (October 4, 2023):** The Reserve Bank of India (RBI) on Wednesday maintained its key interest rate at 6.5% for the tenth consecutive meeting, as widely expected by economists. However, the central bank surprised the market by shifting its policy stance to “neutral,” signaling a potential shift towards rate cuts in the future.

The decision comes amidst signs of a slowdown in economic growth, with the latest data showing a decline in India’s services sector activity. While inflation remains a concern, the RBI’s move suggests that the central bank is now prioritizing supporting growth.

“Given the current circumstances, it is prudent to maintain greater flexibility and optionality in alignment with evolving conditions and the broader economic outlook,” stated RBI Governor Shaktikanta Das in his policy statement.

The RBI’s decision to maintain a neutral stance grants it greater flexibility to adjust interest rates based on the direction of inflation in the coming months. This contrasts with the previous stance of “withdrawal of accommodation,” which signaled a tightening bias.

“The prevailing and the expected inflation growth balance have created congenial conditions for a change in monetary policy stance,” Das added.

The central bank projects CPI inflation for 2024-25 at 4.5%, with the second quarter expected to see inflation at 4.1%, the third quarter at 4.8%, and the fourth quarter at 4.2%.

While the global economy remains resilient, the RBI remains cautious about potential downside risks from geopolitical conflicts, financial market volatility, and elevated public debt. The decision to hold rates steady aligns with expectations to keep inflation under check, though the central bank acknowledged that “inflation horse has been bought close to stable, we must keep the horse at tight leash.”

The shift to a neutral stance has been welcomed by several industry players, particularly in the real estate sector. Real estate developers view the decision as a sign of stability and expect the continued rise in residential sales during the festive season.

However, the RBI has also flagged concerns regarding stress buildup in unsecured loan segments, such as loans for consumption purposes, microfinance, and credit card outstandings. The central bank stated that it will be closely monitoring these areas and take corrective actions if necessary.

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