Hawkish Undertone, rate cuts likely in next MPC Meeting

In an expected move, the Reserve Bank of India (RBI) has announced its decision to keep the repo rate unchanged at 6.5 per cent. This decision marks the fourth consecutive time that the central bank has chosen to maintain a pause on its rate-hike cycle.

According to leading economists, the recent policy decision made by the Reserve Bank of India was in line with expectations and carried a discernible hawkish tone. According to experts, there is a growing belief that this decision could potentially stimulate growth in investment and consumption demand. Several economists maintain their expectation that the next policy action in the financial year 2024-2025 will likely be a reduction in interest rates during the first quarter.

In a move that came as no surprise, the policy announced recently remained unchanged, with both the policy rate and stance remaining steady. Despite the moderation of food inflation and core inflation, the Reserve Bank of India (RBI) made a conscious decision to refrain from adopting a dovish stance in its policy communication. In contrast, the future guidance provided by the authorities was accompanied by ample cautionary remarks regarding the path of inflation and the potential risks stemming from uncertainties surrounding the kharif output, diminished reservoir levels, and unpredictable fluctuations in global crude and commodity prices. In a bid to address concerns over potential inflationary pressures and the risks it poses to financial stability, the Reserve Bank of India (RBI) has taken decisive action by implementing policy tools from its August policy. The central bank aims to effectively eliminate the excess liquidity that has been prevalent in the system. In a surprising turn of events, the Reserve Bank of India (RBI) has made an unexpected announcement regarding its monetary policy. The RBI has revealed that Open Market Operations (OMO) sales will now be utilized as a tool to address liquidity concerns in the future. This decision marks a significant shift in the RBI's approach, catching many off guard. In a broader context, it is worth noting the significance of this development, as India may anticipate substantial foreign exchange flows in the fiscal year 2025 due to its inclusion in the JPM bond index.