New Delhi: reserve Bank of India Keeping the benchmark interest rate intact on Friday, bankers and economists said that for the first time monetary policy The committee meeting after the general elections has created confidence and stability in the market and they are hopeful that the central bank will cut interest rates. Repo Rate In the second half of FY 2025. reserve Bank of India (RBI) kept its key interest rate unchanged at 6.5 per cent, as expected, and kept the main focus on it. inflation Amid strong economic growth, the new Modi government is likely to find ample scope for reforms.
The central bank retained its retail inflation forecast for the current fiscal year at 4.5 per cent, assuming normal monsoon conditions, while stressing that uncertainties related to the food price scenario require close monitoring.
“We now see the RBI cutting interest rates from October and have lowered our expectation to two, from the earlier forecast of three cuts,” said Dharmakirti Joshi, chief economist at Crisil Ltd.
According to Ajay Kumar Srivastava, managing director and chief executive officer of Indian Overseas Bank, the RBI's decision to continue its focus on “withdrawal of easing” reflects a balanced approach to sustain economic growth while keeping inflation under control.
He said RBI's decision to extend e-mandate to FASTag for recurring payments, introduce auto-replenishment of wallets like UPI and setting up of digital payments intelligence platform will promote a resilient banking sector.
Rajiv Sabharwal, MD and CEO, Tata Capital, said, “The first MPC after the elections has instilled confidence and stability in the market. With the repo rate steady at 6.5 per cent, the RBI is signalling a balance between growth and inflation.”
According to Achala Jethmalani, economist at RBL Bank, given India's growth-inflation dynamics, a rate cut is expected in Q4FY25 with a change in policy stance by December 2024. The progress of the southwest monsoon and the July budget will be key inputs into the August MPC policy.
Aditi Nayar, Chief Economist, Head of Research & Outreach, ICRA Ltd, said: “The status quo from the MPC was expected, with only the 4:2 change in voting stance being a surprise. Despite this, the 10-year G-Sec yield remained above 7 per cent, and the actual start of the rate cut cycle appeared far away.”
Bank of Baroda chief economist Madan Sabnavis said inflation is expected to average 4.5 per cent this year, but there are concerns about food inflation, especially in light of the heat, which has pushed up prices of horticultural produce. But with growth secure, it gives the RBI room not to start cutting rates at this time.
He said, “We believe that a rate cut could be considered in October, but it will be entirely data-driven. Clarification about the decisions taken by the governor based on local conditions is important, as often markets react to Fed statements, as they are considered to have an impact on RBI's decision on repo rate.”
Rohit Garg, co-founder and CEO of Olive (formerly Smartcoin), said the decision underscores the central bank's commitment to promoting stability amid strong economic growth and a modest decline in inflation to 4.83 percent.
He said, “The Indian government's effort to reduce fiscal deficit supported by dividends from the Reserve Bank of India further strengthens economic stability. Despite revising the GDP forecast for FY25 to 7.2 per cent, the RBI chose to keep the consumer inflation forecast unchanged.”
Anantharam Varayur, co-founder of Mansum Senior Living, said the RBI decision is encouraging especially for the senior housing project sector.
“The unchanged repo rate provides much-needed stability, ensuring that borrowing costs for developers remain stable. Rate of interest “This may attract more investments in housing projects for senior citizens, as developers can plan their finances more effectively,” Varayur said.
The Monetary Policy Committee, comprising three RBI members and an equal number of external members, kept the repo rate unchanged at 6.50 per cent for the eighth consecutive policy meeting and maintained its relatively accommodative stance of “withdrawal of easing”.
However, there were signs of greater divisions in the policy committee, with one additional member voting for easing the stance as well as policy direction. Two external members, Ashima Goyal and Jayant Varma, voted for the cut, while only one had voted for the cut in the previous meeting.
The decision comes just days before Narendra Modi is set to become prime minister for a third time but has suffered a smaller-than-expected electoral defeat, forcing his party, the BJP, to share power in a coalition government.
The central bank retained its retail inflation forecast for the current fiscal year at 4.5 per cent, assuming normal monsoon conditions, while stressing that uncertainties related to the food price scenario require close monitoring.
“We now see the RBI cutting interest rates from October and have lowered our expectation to two, from the earlier forecast of three cuts,” said Dharmakirti Joshi, chief economist at Crisil Ltd.
According to Ajay Kumar Srivastava, managing director and chief executive officer of Indian Overseas Bank, the RBI's decision to continue its focus on “withdrawal of easing” reflects a balanced approach to sustain economic growth while keeping inflation under control.
He said RBI's decision to extend e-mandate to FASTag for recurring payments, introduce auto-replenishment of wallets like UPI and setting up of digital payments intelligence platform will promote a resilient banking sector.
Rajiv Sabharwal, MD and CEO, Tata Capital, said, “The first MPC after the elections has instilled confidence and stability in the market. With the repo rate steady at 6.5 per cent, the RBI is signalling a balance between growth and inflation.”
According to Achala Jethmalani, economist at RBL Bank, given India's growth-inflation dynamics, a rate cut is expected in Q4FY25 with a change in policy stance by December 2024. The progress of the southwest monsoon and the July budget will be key inputs into the August MPC policy.
Aditi Nayar, Chief Economist, Head of Research & Outreach, ICRA Ltd, said: “The status quo from the MPC was expected, with only the 4:2 change in voting stance being a surprise. Despite this, the 10-year G-Sec yield remained above 7 per cent, and the actual start of the rate cut cycle appeared far away.”
Bank of Baroda chief economist Madan Sabnavis said inflation is expected to average 4.5 per cent this year, but there are concerns about food inflation, especially in light of the heat, which has pushed up prices of horticultural produce. But with growth secure, it gives the RBI room not to start cutting rates at this time.
He said, “We believe that a rate cut could be considered in October, but it will be entirely data-driven. Clarification about the decisions taken by the governor based on local conditions is important, as often markets react to Fed statements, as they are considered to have an impact on RBI's decision on repo rate.”
Rohit Garg, co-founder and CEO of Olive (formerly Smartcoin), said the decision underscores the central bank's commitment to promoting stability amid strong economic growth and a modest decline in inflation to 4.83 percent.
He said, “The Indian government's effort to reduce fiscal deficit supported by dividends from the Reserve Bank of India further strengthens economic stability. Despite revising the GDP forecast for FY25 to 7.2 per cent, the RBI chose to keep the consumer inflation forecast unchanged.”
Anantharam Varayur, co-founder of Mansum Senior Living, said the RBI decision is encouraging especially for the senior housing project sector.
“The unchanged repo rate provides much-needed stability, ensuring that borrowing costs for developers remain stable. Rate of interest “This may attract more investments in housing projects for senior citizens, as developers can plan their finances more effectively,” Varayur said.
The Monetary Policy Committee, comprising three RBI members and an equal number of external members, kept the repo rate unchanged at 6.50 per cent for the eighth consecutive policy meeting and maintained its relatively accommodative stance of “withdrawal of easing”.
However, there were signs of greater divisions in the policy committee, with one additional member voting for easing the stance as well as policy direction. Two external members, Ashima Goyal and Jayant Varma, voted for the cut, while only one had voted for the cut in the previous meeting.
The decision comes just days before Narendra Modi is set to become prime minister for a third time but has suffered a smaller-than-expected electoral defeat, forcing his party, the BJP, to share power in a coalition government.