RBI MPC likely to stay on hold amid inflation risks, global uncertainty

Headline retail inflation rose to 4.4 % in June from 3.9 % in May, crossing the RBI’s 4 % target for the first time since January 2025
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SHASHANK PARADE

The RBI’s Monetary Policy Committee is projected to hold the repo rate steady at 5.25 % and keep its neutral stance at the August 3‑5 meeting, even as inflation pressures mount due to higher oil prices, a weaker rupee, tensions in West Asia and possible El Niño effects.

The committee has kept the repo rate unchanged in its last three meetings and maintained a neutral policy stance for six straight sessions.

Headline retail inflation climbed to 4.4 % in June, up from 3.9 % in May, surpassing the RBI’s 4 % benchmark for the first time since January 2025 and reaching an 18‑month peak.

In June the RBI lifted its FY27 inflation forecast to 5.1 % from 4.6 % and trimmed its GDP growth outlook to 6.6 % from 6.9 %, signalling growing inflation worries and global uncertainty.

Price Stability Remains Key Focus

RBI Governor Sanjay Malhotra stressed that preserving price stability is the central bank’s top priority despite a tough global environment. “Our main goal is price stability. While broad‑based inflation pressures are still modest, the danger that higher food, fuel and other input costs could spark a wider inflationary trend is genuine. Our analysts are examining the interplay between growth and inflation,” Malhotra told BusinessLine on July 26.

He noted that the MPC will base its decision on incoming data and the shifting outlook, adding that the current policy rate was deemed suitable in June amid heightened global uncertainties.

The Governor also pointed out that although there are early indications that inflationary pressures are broadening, they remain limited. “We are observing some signs, but they are modest. Let’s wait for more information,” he remarked.

Economists Expect “Neutral Pause”

Barclays Securities (India) analysts Aastha Gudwani and Amruta Ghare anticipate the MPC will continue with a “neutral pause”, arguing that the recent inflation uptick is mainly supply‑driven and that premature tightening could damage growth.

Bank of Baroda economist Sonal Badhan forecasts no alteration in rates or stance but suggests the RBI could use the review to signal a possible future hike. She highlighted risks from shipping costs via the Strait of Hormuz and the Red Sea, together with food prices, and expects at least one rate increase in the second half of FY27.

CARE Ratings chief economist Rajani Sinha said the policy direction will hinge on how growth and inflation evolve. A calm external setting could let the MPC overlook the short‑term inflation surge, whereas any escalation in geopolitical tensions or energy prices might raise the chance of a rate hike later in the fiscal year.

Published on August 2, 2026