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RBI: Bias Shifts To Neutral But December Rate Cut Not A Done Deal

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The RBI kept rates on hold as widely expected, with the key rate held at 6.50%. The central bank did shift its long held policy stance from 'withdrawal of accommodation' to neutral. This is seen as the first step towards the central bank ultimately cutting the policy rate. 

  • It was a vote of 5 out of 6 board members to keep the policy rate unchanged (presumably the dissenter was looking for a policy rate cut). The shift to the neutral stance was unanimous.
  • No doubt this shift will see increased speculation of a rate cut at the next RBI meeting, which is due on Dec 6 later this year.
  • Still, RBI Governor Das was at pains to stress the central bank is mindful of inflation risks. It expects Sep inflation to bounce due to base effects and is mindful of upside risks from the recent uptick in food and metals prices, while geopolitics also play a risk.
  • The 2025 financial year forecast for inflation was retained at 4.5% (so still above the mid point of the 2-6% target range). Core inflation pressures are expected to remain contained though, while food price pressures may also ease but this remains contingent on the weather outlook.
  • Das painted a mostly positive growth backdrop, with the current financial year forecast at 7.2% maintained for real GDP.
  • Investment activity was described as buoyant, while manufacturing sentiment was improving. Overall, domestic demand was described as steady.
  • Today's outcome clears the way for a rate cut, but Dec is by no means a done deal. The RBI is seeking flexibility amid an evolving global outlook. This backdrop, coupled with domestic inflation conditions, and growth resilience will likely be monitored between now and the Dec meeting. 
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The RBI kept rates on hold as widely expected, with the key rate held at 6.50%. The central bank did shift its long held policy stance from 'withdrawal of accommodation' to neutral. This is seen as the first step towards the central bank ultimately cutting the policy rate. 

  • It was a vote of 5 out of 6 board members to keep the policy rate unchanged (presumably the dissenter was looking for a policy rate cut). The shift to the neutral stance was unanimous.
  • No doubt this shift will see increased speculation of a rate cut at the next RBI meeting, which is due on Dec 6 later this year.
  • Still, RBI Governor Das was at pains to stress the central bank is mindful of inflation risks. It expects Sep inflation to bounce due to base effects and is mindful of upside risks from the recent uptick in food and metals prices, while geopolitics also play a risk.
  • The 2025 financial year forecast for inflation was retained at 4.5% (so still above the mid point of the 2-6% target range). Core inflation pressures are expected to remain contained though, while food price pressures may also ease but this remains contingent on the weather outlook.
  • Das painted a mostly positive growth backdrop, with the current financial year forecast at 7.2% maintained for real GDP.
  • Investment activity was described as buoyant, while manufacturing sentiment was improving. Overall, domestic demand was described as steady.
  • Today's outcome clears the way for a rate cut, but Dec is by no means a done deal. The RBI is seeking flexibility amid an evolving global outlook. This backdrop, coupled with domestic inflation conditions, and growth resilience will likely be monitored between now and the Dec meeting.