RBI Monetary Policy: Mint Street to hold tight for now, December stance shift looms

MPC is likely to maintain the current repo rate of 6.5 percent, unchanged since April 2023, as growth and inflation risks have yet to shift significantly.

The central bank’s policy stance remains one of "withdrawal of accommodation," signaling that rate cuts are off the table for now. 

A shift to a "neutral" stance could come in December, allowing for more flexibility in future rate decisions. For October, however, a status quo is expected.

India's growth narrative also remains steady. 

The RBI is likely to maintain its GDP growth forecast for 2024-25 at 7.2 percent, despite a dip to 6.7 percent in Q1 due to a contraction in government spending related to the election cycle.

Inflation remains a key focus, especially given the recent rise in food prices. Yet, most analysts foresee no change in the inflation projection, as the RBI will likely consider recent geopolitical tensions in the Middle East as having limited immediate impact on India’s economy. 

"The Middle East issue has led to oil prices moving up and could create some noises," said Indranil Pan, chief economist at YES Bank. However, he added that no immediate action on rates or stance is expected.

RBI is also unlikely to introduce new liquidity measures, opting instead to manage liquidity through existing tools like variable rate reverse repo auctions. With upcoming festive outflows and tax payments, maintaining a liquidity surplus will be crucial.

While crude oil prices have risen amid the Israel-Iran tensions, the impact on India’s inflation is expected to be contained unless prices surge further. "We did not expect a change in stance in October, and recent global developments reinforce this outlook," noted Kanika Pasricha, chief economic advisor at Union Bank of India. 

This sets the stage for a potential shift in December, but for now, the central bank is expected to hold its ground.