Status quo on rate; stance too may not change

Growth-inflation dynamics are shifting slowly, but the RBI may not be in a hurry to act amid too many uncertainties

- TAMAL BAN DYO PAD HYAY

In its August meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to maintain the status quo - keeping both the policy rate and stance unchanged. The Indian central bank had shown no concern over growth and no comfort on inflation, resulting in the ninth consecutive pause.

The repo rate - at which the RBI lends to banks - remained unchanged at 6.5 per cent. The stance also stayed as "withdrawal of accommodation" to ensure that inflation aligns with the target while supporting growth.

What has changed since then?

Well, the MPC has been reconstituted with three new external members. Will the new MPC signal a shift, at least in the policy stance?

Globally, central banks' approaches are varying, reflecting different stages in the fight against inflation across regions.

In September, the US Federal Reserve announced its first rate cut since the early days of the Covid pandemic, lowering the Fed funds rate by half a percentage point to 4.75-5 per cent. This was the first half a per cent cut since the global financial crisis of 2008, excluding the pandemic period. Last week, Federal Reserve Chair Jerome Powell hinted at more interest rate cuts, though the timing and scale would depend on economic developments. The Fed's "dot plot", which records projections of each of the 12 members of the Federal Open Market Committee, its rate-setting body, suggests four more quarter percentage point cuts in 2025 and two more in 2026.

Eurozone inflation dipped below 2 per cent in September for the first time since mid-2021, raising the possibility of yet another rate cut by the European Central Bank (ECB). Inflation in the 20-country bloc eased to 1.8 per cent, lower than what most analysts had expected. Last month, the ECB cut its rate by a quarter percentage point to 3.5 per cent, following a similar move in June.