RBI’s monetary policy committee has changed the policy stance to neutral to give itself more flexibility in the current macroeconomic situation
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Even though financial markets were prepared for a no-rate cut policy, the tone of the statement surprised many analysts. The six-member monetary policy committee of Reserve Bank of India has changed the policy stance to neutral from accommodative to give itself more flexibility in the given macroeconomic situation and evolving inflation dynamics.
The headline consumer price inflation is being excessively influenced by lower food prices while the core inflation has remained sticky at around 5% since September. There are also upside risks to inflation due to factors such as rising commodity prices and volatility in global currency markets. The monetary policy committee also wants to see the effect of currency swap on output and inflation.
Overall, the policy stance and the commitment to achieve the 4% inflation target in a calibrated manner will enhance the credibility of the rate-setting committee. However, the shift in the policy stance does not mean that another rate cut in the cycle should be completely ruled out.