The Reserve Bank of India's Monetary Policy Committee (MPC) has unanimously decided to keep the policy repo rate unchanged at 5.25%, in line with the expectations of the vast majority of market observers.
The Standing Deposit Facility (SDF) rate remains unchanged at 5%, while the Marginal Standing Facility (MSF) rate and the bank rate stands at 5.5%.
29 of 30 economists polled by Bloomberg said that the central bank's six-member Monetary Policy Committee, headed by Governor Sanjay Malhotra, is expected to leave the repurchase rate unchanged at 5.25%. Policymakers are also likely to retain a neutral stance as inflation remains well within the RBI's 2%-6% tolerance band.
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The MPC noted that headline inflation has moved above the target in line with expectations, although realised inflation for the April-June quarter came in lower than anticipated.
The recent rise in inflation has been driven largely by food and fuel prices. The MPC expects headline inflation to increase further in the near term, peak during the third quarter, and then gradually moderate thereafter.
Growth Forecast
The Monetary Policy Committee raised its FY27 GDP growth forecast by 10 basis points to 6.7%, citing resilient domestic demand and stronger-than-expected economic activity.
It now expects GDP growth at 7% in the first quarter, 6.4% in the second quarter, 6.5% in the third quarter, and 6.8% in the fourth quarter. The committee said the risks to the growth outlook remain evenly balanced.
- FY27 GDP growth projected 10 bps higher at 6.7%
- Q1 GDP growth seen at 7%
- Q2 GDP growth seen at 6.4%
- Q3 GDP growth seen at 6.5%
- Q4 GDP growth seen at 6.8%
Inflation Forecast
The Monetary Policy Committee revised its FY27 CPI inflation forecast lower by 10 basis points to 5%, while retaining its view that inflation will peak in the third quarter before easing gradually.
It projects CPI inflation at 4.7% in Q2, 5.9% in Q3, 5.5% in Q4, and 5.3% in the first quarter of FY28. The MPC also pegged core inflation for FY27 at 4.3%, adding that core inflation excluding precious metals is expected to remain below 4.3% during the fiscal year.
- FY27 CPI inflation seen at 5%, 10 bps lower than earlier forecast
- Q2 CPI inflation seen at 4.7%
- Q3 CPI inflation seen at 5.9%
- Q4 CPI inflation seen at 5.5%
- Q1 FY28 CPI inflation seen at 5.3%
- Core inflation in FY27 seen at 4.3%
- Core inflation, excluding precious metals, seen below 4.3% in FY27
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Macro Commentary
Growth continues to be supported by resilient domestic demand, cementing India's position as the world's fastest-growing major economy, the MPC said. It noted that high-frequency indicators remain robust, early corporate earnings for the June quarter point to resilience, and private consumption continues to be driven by strong discretionary spending.
Merchandise exports have also rebounded with double-digit growth, leading the committee to conclude that the Indian economy performed better than expected in the first quarter.
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