- RBI MPC flagged higher food and fuel prices as key inflation risks requiring caution
- Governor Malhotra noted CPI rise driven by food and fuel, with core inflation still modest
- Member Poonam Gupta suggested limited scope for easing and potential rate hike in 2026
The Reserve Bank of India's latest Monetary Policy Committee (MPC) minutes signalled a growing sense of caution around further monetary easing, with members flagging higher food and fuel prices as key risks to the inflation trajectory. While the Indian economy is expected to remain resilient, policymakers indicated that the recent rise in consumer price inflation warrants close monitoring and greater certainty before any further policy action.
RBI Governor Sanjay Malhotra said the recent higher Consumer Price Index (CPI) print was driven largely by food and fuel prices, while there were limited signs of inflation becoming broad-based. He noted that core inflation remains modest, although there are signs of normalisation from the benign levels seen earlier.
Malhotra said inflation expectations have moved slightly higher but remain contained. Inflation is expected to taper from its peak in the third quarter, he added, while emphasising that the central bank would prefer to wait for greater clarity on the CPI trajectory.
The Governor also noted that the developments could suggest a recalibration of the policy rate.
RBI MPC member Poonam Gupta struck a more hawkish tone, saying the current situation does not appear to leave much scope for further monetary easing. She also said the average oil price assumption for the year may need a modest upward revision.
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Gupta's assessment was particularly significant as she said the higher inflation forecast makes a case for a rate hike during 2026.
Another MPC member, Ashima Goyal, said economic headwinds had changed very little, while highlighting that the inflation trajectory calls for close monitoring.
RBI MPC member Nagesh Kumar said there is currently no case for monetary policy action. However, he cautioned that an improved economic outlook should not be a reason for complacency.
The minutes also highlighted risks from elevated fuel prices. MPC member Rajeshwar Rao Bhattacharya said higher fuel prices could feed into second-round inflationary effects, potentially making the inflation shock more persistent.
MPC member J.R. Varma said a pause in policy action should not necessarily be interpreted as the beginning of an extended pause. He preferred to wait for the risks to manifest in actual CPI prints before drawing conclusions on the future policy trajectory.
The comments suggest that the RBI's focus is gradually shifting from supporting growth through monetary easing towards ensuring that inflation remains firmly anchored. With food and fuel prices emerging as key drivers of the recent increase in CPI, policymakers appear keen to assess whether the pressure proves temporary or begins to spread more widely across the economy.
For markets, the minutes indicate that expectations of additional rate cuts may need to be tempered. While the RBI has not signalled an immediate tightening cycle, the possibility of a rate hike in 2026 has entered the policy discussion, particularly if inflation remains above the central bank's comfort zone.
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