By Swati Bhat and Sudipto Ganguly
MUMBAI (Reuters) -The Reserve Bank of India (RBI) kept its key interest rate unchanged on Wednesday as widely expected, but changed its policy stance to "neutral", opening the door for rate cuts amid early signs of a slowdown in the economy.
The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a tenth straight policy meeting.
The committee, however, changed its policy stance to "neutral" from "withdrawal of accommodation".
The committee voted unanimously to change the stance but said they will remain unambiguously focused on the durable alignment of inflation to target while supporting growth.
Five out of six members vote in favour of holding rates.
Rates were predicted to be kept on hold by 80% of the 76 economists polled by Reuters. The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%.
India's benchmark 10-year bond yield fell 5 basis points to 6.7392%, on the change in stance. Equity index Nifty 50 was up 0.67% at 25,177.5 points, while the S&P BSE Sensex added 0.55% to 82,080. The benchmarks were up 0.2% each ahead of the policy decision.
The Indian rupee was flat at 83.9450 against the dollar.
Annual retail inflation remained below the central bank's target of 4% for a second consecutive month, clocking in at 3.65% in August but higher than the revised 3.60% in July and economists' forecast of 3.5%.
The central bank expects inflation to average 4.5% in the financial year 2024-25, unchanged from the forecast provided at the August meeting.
While the recent escalation of tensions in the Middle East has shrouded the outlook on the inflation trajectory, concerns about economic growth have also begun to emerge.
High-frequency indicators such as the manufacturing PMI slowed to an eight-month low in September, while the services PMI eased to a 10-month trough, latest data showed. India's overall growth slowed to 6.7% in the June quarter.
The central bank expects GDP growth in the current financial year at 7.2%.
The prevailing and expected inflation-growth balance have created conditions for a shift in the monetary policy stance, Reserve Bank of India governor Shaktikanta Das said announcing the rate decision.
There is greater confidence on the last mile of disinflation, Das said, while adding that significant risks persist from adverse weather conditions, geopolitical conflict and the recent increase in some commodity prices.