The Reserve Bank of India’s new neutral rate
The central bank is lowering the policy rate despite its relatively pessimistic assessment of inflationary pressures
India’s new monetary policy committee (MPC) met under the new central bank governor for the first time on 4 October, and decided to lower the benchmark repo rate by 25 basis points to 6.25%. It also signalled a more practical approach towards cleaning up bank balance sheets. This was in line with market expectations. First, the central bank had indicated towards the end of the tenure of the previous governor that it had shifted to an accommodative mode. Second, consumer price inflation was trending downward and seemed to be within its comfort zone. Third, the new governor was widely perceived as dovish, with a growth and credit rather than anti-inflationary and financial stability bias, in contradistinction to the former governor.
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