The Reserve Bank of India (RBI) retained the policy repo rate at 6.50 per cent for the tenth consecutive time on Wednesday.

However, in a potential pivot, the apex bank changed its stance to neutral that opens up the possibility of an interest rate cut as early as December. The RBI was following ‘withdrawal of accommodation’ stance, which completely ruled out reduction in interest rates.

With the shift in stance to neutral, the RBI can move either way depending on inflation and growth: it can raise rates if inflation looks menacing or bring them down if growth moderates. This change comes at a time system liquidity is in a surplus mode.

The decision to change the stance came after a three-day meeting of the monetary policy committee (MPC) that saw the participation of three new external members — Saugata Bhattacharya, Ram Singh and Nagesh Kumar.

While all the members voted in favour of changing the stance, five voted to keep the repo rate unchanged at 6.50 per cent, with Kumar proposing a 25 basis point cut in the benchmark rate.

RBI governor Shaktikanta Das said in a televised address the MPC decided to remain unambiguously focused on a durable alignment of inflation with the target of 4 per cent, while supporting growth.

He said both inflation and growth is well balanced. Though headline inflation is declining, its pace slow and uneven.

“The moderation in headline inflation is expected to reverse in September and likely to remain elevated in the near-term because of adverse base effects, among other factors,’’ he said.

On the other hand, growth has sustained its momentum, with both private consumption and investment showing a growth. Das said resilient growth has given it the room to focus on inflation and ensure its durable descent to the 4-per-cent target.

Later while speaking to the press, Das said the stance was changed as both growth and inflation are now well balanced. He refrained from commenting on whether this step marked a pivot, saying it is for others to assess.

He said the neutral stance gives the RBI more flexibility and optionality to address inflation and growth.

“We have changed the stance at the moment because we see that growth and inflation, they are well poised, the balance is well poised. So, the MPC considered it appropriate, the timing is appropriate to shift the stance to neutral.”

Rahul Bajoria, an economist with Bank of America, said the RBI’s guidance sets up the next meeting in December as the one where it can potentially cut rates amid slowing growth and manageable inflation

“The shift in stance is a way for the RBI to signal its openness to cut rates if needed, subject to last mile inflation target achievement in next few quarters.”

Sujan Hajra, chief economist at Anand Rathi Shares and Stock Brokers, said if macro indicators remain weak through October-December 2024, the probability of a rate cut in December 2024 will increase.

However, a note from Axis Securities said a rate cut would happen only in the February 2025 MPC meeting.

K.Srivastava, chief policy adviser at EY India, said the RBI’s growth projections could be at risk if the government’s investment spending does not gain momentum.“The RBI foresees stronger growth accompanied by higher inflation in the second half of the fiscal year. This may indicate that the rate reduction cycle may be postponed even beyond December 2024 unless the speed and extent of global policy rate reductions make it urgent.”

With inputs from Delhi Bureau