Key Points
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously voted for a change in stance to neutral from withdrawal of accommodation while one member dissented on the rate action in favour of a rate cut..
There is a significant change in the RBI governors statement from the last policy with focus increasingly shifting to balancing growth and inflation rather than being actively disinflationary..
The neutral stance gives RBI more degrees of freedom for managing liquidity and thus transmission of policy rates into broader interest rates..
Globally, across developed and emerging markets, central banks are now easing policy rates and injecting liquidity driven by changing domestic growth and inflation dynamics even as there are a few outliers (Japan, Brazil and Russia)..
As we have argued earlier, potential weaker domestic growth and medium term inflation hugging the 4% target rate along with further rate cuts by global central banks makes the case strong for rate cut in December..
