MONETARY POLICY IN UNUSUAL TIMES

The RBI Monetary Policy Committee’s (MPC) decisions on Wednesday evoked mixed reactions from the industry, experts and analysts. The MPC met on September 29, 30 and October 1, to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic conditions, the MPC voted unanimously to keep the policy repo rate unchanged at 5.5%.  

“IMC had advocated a 25 bps cut as a strategic signal supporting Atmanirbhar Bharat, MSME competitiveness, and Swadeshi-led growth. However, while preserving RBI’s flexibility to act if conditions change, we recognize that the decision by RBI MPC to maintain the repo rate and retain a neutral stance reflects RBI’s cautious balancing of inflation, currency stability, and external risks,” said Sunita Ramnathkar, President, IMC Chamber of Commerce and Industry.

“The MPC delivered exactly a “dovish pause” which the market expected. But despite the policy being in tune with market expectations, the market has given a thumbs up to the policy since the Central bank delivered some unexpected pro-market initiatives like allowing banks to fund acquisitions and also further liberalising loans against shares by raising the limit from Rs 20 lakhs to Rs 1 crore. The ceiling on lending against debt instruments has been removed and the lending limit for IPOs has been raised from Rs 10 lakhs to Rs 25 lakhs. These capital market initiatives are market-friendly and therefore welcome from the stock market perspective. 

“Raising the GDP FY26 forecast to 6.8% and lowering the FY26 CPI inflation forecast to 2.6% from 3.1% reflect the central bank’s optimism about the resilient economic outlook. The governor’s comments indicate the possibility of one more rate cut; but it will depend on the incoming data and evolving outlook,” emphasized Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments.

“The inflation outlook was classified as more benign, given a sharper than expected fall in food prices, improved supply conditions, GST rationalisation, with core inflation also expected to remain contained. Concerns around recent INR depreciation was also noted, with the governor assuring of taking appropriate steps as warranted. The statement noted policy transmission across sectors, with further support likely from improvement in liquidity conditions from drawdown in GOI cash balances and durable liquidity injection from forthcoming CRR cuts,” Naval Kagalwala, COO & Product Head, Shriram Wealth ltd.