Economists back RBI's neutral stance, see lower inflation and stable rates supporting growth
Mumbai, August 5
Economists broadly welcomed the Reserve Bank of India's decision to keep the policy repo rate unchanged at 5.25 per cent and retain a neutral stance, saying easing inflation risks, improving capital inflows and adequate liquidity provide room for the central bank to remain on pause while closely monitoring global uncertainties.
The Monetary Policy Committee (MPC) also raised its FY27 growth forecast to 6.7 per cent and lowered its inflation projection to 5.0 per cent, citing resilient domestic demand and easing supply-side pressures.
Reacting to the policy, Crisil Chief Economist D K Joshi said the outcome was largely in line with market expectations.
"We were expecting a neutral stance. We were expecting the policy rate to remain unchanged. We did not expect growth and inflation forecasts to change significantly... the policy was very much aligned with what the market was expecting," he told ANI.
On inflation risks, Joshi said food inflation would become a concern only if a "very intense El Nino" leads to prolonged dry spells, adding that the current reservoir position and rainfall remain comfortable. He also said improving capital inflows should help finance a wider current account deficit this year, making "the rupee... more stable this year."
Rajani Sinha, Chief Economist at CareEdge Ratings, said the RBI's neutral stance gives it flexibility to respond to evolving macroeconomic conditions without committing to a specific policy direction.
"The environment is so fluid that it would be better for the central bank to leave the future decisions more dependent on the data and how the global macro scenario unfolds," she said, adding that food inflation is expected to peak in the third quarter before moderating in the final quarter of FY27.
Sinha also said India is likely to maintain a comfortable current account deficit of around 1 per cent of GDP this fiscal year, while stronger capital inflows are expected to support the balance of payments. She added that liquidity is likely to remain abundant, and the RBI may eventually need to take steps "to reduce liquidity in the system" rather than inject more funds.
Piramal Group Chief Economist Debopam Chaudhuri described the policy as "boring is beautiful", saying maintaining the status quo was the appropriate decision.
He said falling crude oil prices and easing weather-related risks could keep inflation below the RBI's third-quarter projection, giving the central bank room to maintain its pause through the rest of the calendar year.
Chaudhuri also said the RBI is likely to remain proactive in providing short-term liquidity if required, while adding that he does not see the need for open market operations (OMO) at this stage.
— ANI
Reader Comments
The RBI's neutral stance is sensible. With global uncertainties and food inflation risks, it's better to wait and watch rather than rush into rate changes. I appreciate the cautious approach - slow and steady wins the race. However, I wish the RBI would address the liquidity surplus more clearly for small businesses.
"Boring is beautiful" - absolutely right! Predictable policy is what markets need. We don't want any surprises in these uncertain times. The FY27 growth forecast of 6.7% looks optimistic but achievable if monsoons cooperate and global headwinds don't worsen. Good move by MPC to stay put.
As someone who invests in fixed deposits, stable rates are good news. But I'm concerned about the inflation projection of 5.0% - that's still above the 4% target. The RBI needs to be more aggressive in tackling core inflation. Otherwise, my savings are slowly losing value. 😕
Good to see economists praising the decision. The neutral stance gives flexibility - that's smart policymaking in these volatile times. I just hope the RBI monitors the El Nino situation closely. If food inflation spikes later, they should be ready to act. Also, kudos to the MPC for acknowledging improving capital inflows - that's positive for the rupee.
The RBI's decision to keep rates unchanged at 5.25% is a balanced move, but I'm a bit skeptical about the 6.7% growth forecast for FY27. Private consumption is still weak in rural areas. Also, the comment about eventually reducing liquidity - that could put pressure on bond markets. Let's hope the RBI manages this transition smoothly.