Change of stance to neutral doesn't mean pause on rate cut: Economists

The change in stance to neutral from accommodative in the June monetary policy meeting does not necessarily signal that the Reserve Bank of India's (RBI's) rate-setting body—monetary policy committee (MPC)—will go on a prolonged pause on rate cuts going forward, believe experts.

- SUBRATA PANDA

The MPC, last week, cut the policy repo rate by 50 basis points (bps) to 5.5 per cent, surprising markets, which had largely priced in a more modest reduction of 25 bps. Simultaneously, the RBI announced a staggered 100 bps reduction in the banks' cash reserve ratio (CRR) requirement, bringing it down to 3 per cent of banks' net demand and time liabilities (NDTL).

Additionally, the stance was changed from "accommodative" to "neutral" as the MPC felt that after having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, it was left with very limited space to support growth.

Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India said in a report that the MPC decision to go for a relatively large cut, while changing the stance to neutral, should not be confused with a pause on future rate cuts trajectory in the medium term.