'Neutral' Policy Stance

A change in the monetary policy stance from 'calibrated tightening' to 'neutral' in February monetary policy and a repo rate cut in April next year policy. Sounds perfect! But it is easier said than done. There are global factors - from oil and trade wars to currency wars - all of which can derail the interest rate easing cycle.

In an otherwise predictable monetary policy where the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.50 per cent, the only surprise was on the inflation front. The RBI has lowered the projected inflation target from 3.9-4.5 per cent to 2.7-3.1 per cent in the second half (October-March) of the current fiscal. This is positive for the market.

Similarly, the inflation target of 4.8 per cent in the first quarter (April-June) of 2019/20 was lowered to 3.8-4.2 per cent in the first half of the year. In fact, one of the six members of the MPC, Ravindra Dholakia, has already voted for changing the stance to 'neutral'. The developments in the next two months will clear the picture.