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In its latest monetary policy decision, the Reserve Bank of India (RBI) opted for a cautious approach, maintaining the status quo on both policy rates and liquidity stance, despite the moderating core inflation. The decision underscores the central bank’s vigilance over headline inflation, which remains above the Monetary Policy Committee’s (MPC) target, amidst strong growth dynamics in India.

This careful stance reflects concerns over potential inflationary pressures arising from volatile food prices, recent upticks in oil prices, and robust economic growth. While there was some anticipation of rate cuts by the end of 2024, the RBI seems inclined to adopt a wait-and-see approach before initiating a rate cut cycle. The central bank’s current neutral policy stance appears designed to mitigate risks without unduly unsettling the debt and equity markets.

This strategy highlights the RBI’s priority to balance growth with inflation control, acknowledging the significant weight of volatile food components in India’s retail inflation basket and the potential impact of global oil price fluctuations.

Views by: Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers

According to the RBI monetary policy report, growth in the US and several major emerging market economies (EMEs) has held up better than expected. Sectorally, manufacturing activity has remained subdued, but services have exhibited strength. Headline inflation has come down across countries although the descent

in core and services inflation has been slow amidst continuing tightness in labour markets.

Core inflation (excluding food and fuel) has been on a steadily declining path says RBI. In February 2024, it fell to 3.4 per cent, among the lowest prints in the current CPI series, driven by both core goods and services components.