RBI's Shift to a Neutral Stance: Signaling a New Phase in Monetary Policy

For over a year, the Reserve Bank of India (RBI) has taken a firm stance against inflation, raising interest rates by 250 basis points between May 2022 and February 2023 in response to post-pandemic price pressures.

- Tirthankar Mitra

The RBI's recent decision to maintain the key interest rate at 6.50% while adopting a "neutral" policy stance marks a significant shift in its approach to balancing inflation control with economic growth. This move, following 10 consecutive meetings of holding rates, suggests that rate cuts may be on the horizon.

The implications of this decision for India's economic trajectory are considerable. While it is widely acknowledged that inflation has cooled in recent months, retail inflation has dipped below the central bank's 4% target, underlying risks remain.