The Reserve Bank of India (RBI) on Wednesday kept the repo rate unchanged at 5.25% and retained its “neutral” policy stance, choosing to wait for greater clarity on inflation even as it raised its economic growth forecast for the current financial year.
The six-member MPC unanimously decided to keep the key rate unchanged. The Standing Deposit Facility (SDF) rate is still pegged at 5% whereas the Marginal Standing Facility (MSF) rate is unchanged at 5.5%.
The central bank raised the FY27 GDP growth projection to 6.7% from 6.6% projected previously. Its full year inflation projection was revised downward to 5% from 5.1%.
RBI sees inflation risks but prefers to wait
However, despite the positive outlook, the RBI has maintained that the level of uncertainty about inflation is quite high.
“There needs to be a higher degree of clarity, particularly on inflation, its trajectory, and composition before any monetary policy action,” MPC stated in its resolution.
It stated that the inflation was being caused mainly by the price levels of food and fuel, and that there were no other pressures on inflation. Additionally, the core inflation, except for precious metals, was benign, implying that demand-induced inflation was still under control.
According to the RBI, the inflation will continue rising for the next few months and reach a peak in the third quarter of FY27 before declining in the financial year.
Domestic growth remains resilient
According to the RBI, the Indian economy has shown resilience even in the face of an unfavourable global situation due to the presence of robust domestic demand, sound manufacturing performance, stable services expansion and strong exports.
In FY27, the central bank now expects the GDP to grow by 6.7%. The GDP growth projection for Q1 is at 7%, for Q2 at 6.4%, for Q3 at 6.5% and for Q4 at 6.8%.
For FY27, the central bank expects the inflation rate to be 5%. Inflation is expected to be 4.7% in Q2, 5.9% in Q3 and 5.5% in Q4. The core inflation is forecasted to be 4.3% for the year.
But, as per the RBI, the outlook is uncertain due to the war in West Asia, fluctuating oil prices, unstable southwest monsoon on account of El Niño weather patterns and uncertainties in global trade policy.
RBI announces additional policy measures
In addition to the policy, the RBI released a draft set of guidelines on licensing new urban cooperative banks. The RBI has also released a harmonized framework of interest rates on loans of different regulated entities.
According to the central bank, it will continue to monitor all incoming data and will remain focused on keeping the inflation rate in line with its objective while promoting sustainable economic growth.
The Minutes of the August MPC will be published on August 19. The next MPC meeting will be held on October 5-7.
(Disclaimer: This article is for informational purposes only and should not be considered investment advice. The views, opinions, and recommendations expressed herein are those of the respective experts. Readers are advised to consult a qualified financial advisor before making any investment decisions.)
Prabhat Gupta is Senior Copy Editor of Business Segment. He has worked across broadcast and digital newsrooms, editing and producing stories on politics, business, regulation and current affairs. His work has included writing on global markets and regulatory developments, along with long-form editorial content on business and governance.
He holds a master’s degree in Political Science from the University of Delhi and qualified UGC-NET in the subject, bringing an academic grounding to public affairs and policy coverage.
