India's central bank maintains repo rate at 6.50% for tenth consecutive meeting

This decision comes as India’s economy shows early signs of deceleration, with key indicators such as the manufacturing and services Purchasing Managers’ Index (PMI) registering declines. The RBI’s decision to keep rates unchanged aligns with expectations from a majority of economists, who predicted stability in the face of fluctuating inflation rates, which have recently been below the central bank’s target. With annual retail inflation recorded at 3.65% in August, the RBI is navigating a complex landscape of global economic pressures, particularly in light of recent geopolitical tensions that could impact inflation and growth trajectories.

Economic Context

• Inflation Trends: India’s annual retail inflation has remained below the RBI’s target of 4% for two consecutive months, suggesting a cooling in price pressures that may allow for more accommodative monetary policy in the future.
• Growth Indicators: The economic growth rate slowed to 6.7% in the June quarter, raising concerns about the sustainability of the recovery. High-frequency indicators, particularly the manufacturing PMI, have indicated a slowdown, prompting the RBI’s shift in policy stance.

Future Outlook

The change to a “neutral” stance suggests that the RBI is prepared to respond to evolving economic conditions, particularly if inflation continues to trend lower and growth remains subdued. This approach may pave the way for potential rate cuts in upcoming meetings, depending on the economic data and global developments. The RBI’s careful monitoring of inflation and growth signals its commitment to maintaining economic stability while fostering growth.