RBI keeps monetary policy stance at neutral

RBI in its monetary policy meeting today maintained a neutral stance, while cutting down interest rate by 50 basis points. Neutral monetary policy stance means that the central bank will neither go for increasing money supply in the economy, nor for reducing it.

In its previous monetary policy meeting RBI had changed its monetary policy stance to neutral from withdrawal of accommodation stance. Withdrawal of accommodation stance means reducing money supply or liquidity in the economy. Indian central bank had kept withdrawal of accommodation stance for around 2 years. This after inflation shot up due to Covid lockdowns.

Reserve Bank of India (RBI) cut down repo rate by 50 basis points or 0.5% today in its monetary policy meeting today. RBI governor Sanjay Malhotra announced the decision. The broader expectation was that RBI would go for 25 basis point rate cut. One basis point is 0.01%. The repo rate after this cut stands at 5.5%.

Neutral monetary policy stance not surprising

The decision to cut interest rates while maintaining neutral stance is not surprising. The RBI wants to give a boost to economic growth by cutting down interest rate. At the same time, it does not want to take the risk of fueling inflation by increasing money supply in the economy.

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Source: RBI