RBI's Accommodative Stance Indicates Shift in Inflation Outlook

The Reserve Bank of India, influenced by easing inflation expectations, has adopted a more accommodative monetary policy stance. A State Bank of India report highlights that changes in household inflation expectations have significantly influenced RBI's policy decisions, suggesting a shift from a reactive to a proactive approach towards managing economic risks.

The Reserve Bank of India (RBI) has adopted a more accommodative stance in its monetary policy, responding to signs of easing inflation expectations. A recent report by the State Bank of India (SBI) suggests that the central bank's decisions are influenced not only by past inflation trends but also future expectations.

The SBI report explores whether shifts in the RBI's monetary policy align with changes in household inflation expectations, hypothesizing a responsive approach to directional changes. With a recent shift from neutral to accommodative, the RBI supports growth by easing its policy as household inflation expectations stand at 8.9% for the upcoming three months.

Analyzing five instances between 2018 and 2024, SBI found that the RBI's stance often follows shifts in inflation expectations, highlighting a proactive policy adaptation. When expectations rose, the RBI tightened its policy; conversely, it eased or normalized when expectations fell, underscoring an effort to manage future risks.

The report also emphasized the importance of anchoring inflation expectations to ensure price stability, aligning with global economic standards. On interest rates, SBI noted 50 basis points in policy rate cuts since February 2025, with diverse transmission patterns in deposit rates across bank groups.

Despite these differences, weighted average lending rates for various banks have adhered closely to policy rate changes, indicating effective monetary policy transmission. The SBI report underlines that the RBI's policy is both responsive and forward-looking, balancing inflation control and economic growth.

(With inputs from agencies.)