In line with expectations, the RBI’s Monetary Policy Committee maintained status quo on repo rate. However, the policy stance shifted to ‘neutral’ from ‘withdrawal of accommodation’ earlier. Notably, the decision to shift towards a neutral stance was backed by all six members of the MPC.
Download ReportQuantEco Research || RBI Policy - Preparing for a pivot
The central bank retained its FY25 GDP growth and CPI inflation forecast of 7.2% and 4.5% respectively. As the MPC assessed growth-inflation balance to remain stable in FY25, uncertain global environment warranted having greater flexibility in the policy discourse. This appears to have prompted the switch to the neutral stance. Conditional upon the anticipated comfort on food inflation from Oct-Nov 2024 onwards, we continue to expect the MPC to pivot in Dec-24 with a 25 bps cut in the repo rate. With our target of 10Y g-sec yield of 6.75% attained earlier than expected, we now revise it lower to 6.50% for Mar-25 amidst visibility of monetary policy easing from the RBI, continuation of foreign demand for g-secs on account of India’s inclusion in EM bond indices, and regulatory changes that would generate additional demand for liquid assets.