Gloomy outlook for growth may dampen market sentiment

The Reserve Bank of India (RBI)-led Monetary Policy Committee (MPC) held the repo rate unchanged and continued with its neutral monetary stance, scheduling a cash reserve ratio (CRR) cut to be implemented in two tranches.

- DEVANGSHU DATTA

However, the outlook was gloomy and may be a dampener for sentiment.

The MPC warned about rising volatility in global markets, and cut its GDP outlook for financial year 2025 (FY25) by 60 bps although it hinted at possible recovery from Q4FY25 onwards. While the decision to hold the policy repo rate at 6.5 per cent was taken 4-2 with two members wanting a cut, the decision to continue with the 'neutral' monetary policy stance was unanimous.

Inflation in October has risen significantly with upticks in food inflation and also in core inflation. The central bank's surveys indicate businesses expect input costs to rise, but businesses also expect to be able to pass on most of the input cost increases. If food inflation softens as expected, and fuel costs don't rise, the central bank expects consumer price index (CPI) to stay below the 6 per cent mark through Q3 and Q4 and even stay below 5 per cent through H1FY26.