With inflation under control, boosting economic growth has become the primary objective. As expected RBI reduced policy rate by 25 bps, the repo rate is now 5.75% and the reverse repo rate is 5.50%. More importantly, the MPC decided to change the stance of monetary policy from neutral to accommodative, opening the door for another rate cut in the near term. Judging by the market reaction, the market expected a bigger cut in the current meeting.
It is quite clear that the RBI decision is focused towards boosting aggregate demand rather than just sticking to inflation-based target. Though crude oil prices have been volatile, they are unlikely to change the inflation outlook. At this moment, we expect both headline and core inflation to sustain well within RBI limits.
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Fundamental