The Monetary Policy Committee (MPC) today, kept the policy repo rate unchanged at 6.25% and moved its stance from ‘accommodative’ to ‘neutral’. That could very well mark the end of the current rate cut cycle, which began in January 2015 – at least in the near term.
A ‘neutral’ stance gives the Reserve Bank of India (RBI) the flexibility to move in either direction of the interest rate cycle as macro conditions permit. The shift reflects the central bank’s decision to exert caution on the inflation front in its journey towards the medium-term inflation target of 4%.
- Current macros are conducive for a neutral stance
- Focus hereon will be on speeding up interest rate transmission
- Caution on inflation front drives shift in stance
- Credit and deposit growth diverging in the post demonetization period