The Reserve Bank of India concluded the Monetary Committee Policy meet on August 5, (Wednesday). The RBI Governor Sanjay Malhotra-led MPC has given its verdict on the benchmark repo rate, inflation-cum economic growth projections, and hurdles for the Indian economy
Here is a brief overview of the MPC meet decisions for those who missed it:
1. Repo Rate Unchanged; Stance 'Neutral'
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%.
The committee has also retained a 'neutral' stance.
2. Headline Inflation To Peak Between October-December Period
Headline inflation breached the 4% target after 16 months. CPI rose to 4.4% in June, ending a 16-month stretch below the target. However, the rise was 30 basis points below the central bank's expectations.
Regardless, the committee has projected that inflation will peak in the October to December period, and will moderate thereafter.
3. GDP Forecast Elevated; Inflation Outlook Trimmed
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.
GDP growth forecast has been raised by 10 basis points to 6.7%, citing resilient domestic demand and stronger-than-expected economic activity.
4. Uneven Monsoon, El Nino, Global Trade Uncertainty Blur Near-Term Outlook
Deficient and uneven Southwest monsoon across the subcontinent was one of the major risks to India's economy, as pointed out by Malhotra. Other risks include volatile global oil prices, escalation in the West Asia conflict, Fragile public finances in systemic economies, sticky global inflation and uncertainty on global trade policy.
5. Future Action Depends On Greater Clarity
While concluding his address, Malhotra said that even though headline inflation is projected to increase, it is primarily on account of supply side pressures caused by food and fuel; growth will remain lower in 2026-27; and the outlook remains blurry.
"There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action. Any such action would also have to consider the need for recalibration of policy rates in line with the evolving growth-inflation dynamics, especially the normalisation of the underlying inflation from its benign levels seen hitherto," the governor stated.
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