Reserve Bank's mixed signals: Rate cut & stance shift stir policy confusion

The Reserve Bank of India's Monetary Policy Committee (MPC) on Friday delivered a 50 basis point cut in the policy repo rate to 5.50 per cent, while simultaneously shifting its monetary stance from 'accommodative' to 'neutral'.

- R SURYAMURTHY

NEW DELHI: While the rate cut is intended to frontload support for a still-recovering economy, the move has left analysts puzzled over the central bank's evolving communication strategy — raising questions about policy consistency and clarity.

For much of the past year, the RBI has maintained an explicitly accommodative posture, cutting rates and infusing liquidity to boost growth amid persistent global and domestic headwinds. With headline inflation now declining steadily — reaching 3.2 per cent in April, its lowest since late 2018 — the central bank has found renewed room to act. The MPC revised its inflation projection for FY26 down to 3.7 per cent from the earlier 4 per cent, citing what it called a "durable alignment" with the 4 per cent target.

Yet, the concurrent change in stance to neutral seems to contradict the aggressive rate cut. "It's a bit of a mixed message," said Gaura Sengupta, Chief Economist at IDFC FIRST Bank. "A 50 bps cut implies urgency to support growth, but the shift to neutral indicates the RBI may be done with rate cuts. It sets a higher bar for future easing."