RBI's policy stance turning accommodative shows signs of easing: SBI Report

According to a recent report by the State Bank of India (SBI), the central bank's decisions are not only influenced by past inflation trends but also take into account expectations for the future.

It said "We explore whether shifts in RBI's monetary policy stance have followed changes in household inflation expectations. Specifically, we hypothesize that the RBI's stance responds to directional changes in inflation expectations".

The report noted that the RBI's recent shift in policy stance--from neutral to accommodative--is backed by moderating inflation expectations. Households now expect inflation to be around 8.9 per cent for the next three months.

This indicates a downward shift in inflation sentiment, prompting the RBI to support growth by easing its monetary policy.

SBI analyzed five different instances between 2018 and 2024 when the RBI's Monetary Policy Committee (MPC) changed its stance. It found that these changes often followed clear shifts in household inflation expectations.

For instance, when inflation expectations rose, the RBI tightened its stance. Conversely, when expectations fell, the central bank eased or normalized its policy. This pattern suggests that the RBI is adapting its policy proactively, trying to manage future risks rather than reacting only to current data.

The report also highlighted that anchoring inflation expectations is essential for ensuring price stability, which aligns with standard global economic thinking.

On the interest rate front, the SBI report points out that a total of 50 basis points (bps) in policy rate cuts have been made since February 2025. Following the RBI's 25 bps repo rate cut in February, public sector banks reduced deposit rates by 6 bps and foreign banks by 15 bps.

Interestingly, private banks increased their deposit rates by 2 bps, indicating varied transmission patterns across bank groups.

Despite these differences, the weighted average lending rates (WALR) on fresh loans for public sector banks, private banks, and scheduled commercial banks have closely followed changes in the policy rate. This suggests that the overall transmission of monetary policy remains effective and timely.

The SBI report thus emphasizes that the RBI's policy is both responsive to real-time developments and forward-looking, aiming to balance inflation control with economic growth.