NEW DELHI: What does RBI’s changed stance from ‘accommodative’ to ‘neutral’ mean? Experts now fear that after a jumbo cut in repo rate by 50 basis points, RBI may take a break from further rate cut. The RBI has clearly indicated that from here on, it will be “carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy.”
Many analysts had predicted a terminal repo rate to be 5-5.25%. However, after a 100-bps cut since February monetary policy, the repo rate is now at 5.5%.
The Reserve Bank of India (RBI) on Friday shifted its monetary policy stance from "accommodative" to "neutral", signalling the end of its ultra-loose monetary regime while retaining flexibility to respond to evolving macroeconomic conditions.
Announcing the decisions of the Monetary Policy Committee (MPC), RBI Governor Sanjay Malhotra said, “Monetary policy is now left with very limited space to support growth. Hence, the MPC also decided to change the stance from accommodative to neutral.”
The policy shift accompanies a 50 basis points cut in the repo rate, bringing it down to 5.5%, as inflation remains well below the central bank’s 4% target. The central bank also slashed the Cash Reserve Ratio (CRR) by 100 basis points, in a staggered manner, to infuse durable liquidity.
While acknowledging the benign inflation environment, Malhotra cautioned that the growth-inflation trade-off is becoming more complex, given global uncertainties and capital flow volatility. “The last mile of disinflation is turning out to be more protracted,” he said.
RBI now projects CPI inflation for FY26 at 3.7%, down from 4% earlier, and has maintained the GDP growth forecast at 6.5%.
Malhotra underlined that the stance shift is not a policy pivot, but rather a recalibration. “From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy,” he said, adding, “There is no tussle between price stability and growth — in fact, they are mutually reinforcing over the medium term.”
However, some experts believe the shift in stance to neutral does not necessarily mean the end of road for further rate cuts.
“Contrary to fears that the shift in stance to ‘neutral’ implies an end to easing, it should be interpreted as a calibration move to retain future optionality and prevent speculative froth. If inflation remains below 4% through H2FY26—and transmission visibly improves—there remains room for another 25 bps cut before year-end,” says Arsh Mogre, Economist, PL Capital.