The Crossbill News Desk
The Reserve Bank of India's Monetary Policy Committee (MPC) is expected to maintain the repo rate at its current level when it meets on August 5, with economists pointing to persistent geopolitical uncertainties and inflationary risks as reasons for a cautious approach, The Indian Express reported.
Market participants believe the central bank is likely to refrain from changing interest rates despite mounting pressure from elevated global crude oil prices linked to the ongoing conflict in West Asia.
While these developments have increased inflationary concerns, analysts say the domestic economy remains resilient enough for the RBI to avoid an immediate policy shift.
However, inflation continues to face upside risks from elevated global oil prices, a weak monsoon and lower water reservoir levels.
“We expect MPC members will remain watchful of the progress of the monsoon and its impact on food inflation. We expect RBI to remain on hold for now and also keep the stance unchanged,” Sonal Badhan, Economist, Bank of Baroda (BoB) told the paper.
“Present growth-inflation dynamics is pointing towards risks to growth with a manageable inflation trajectory in the immediate future. This, coupled with elevated global uncertainties, may result in MPC not considering the “rate hike” option in a hurry during the forthcoming MPC meeting in August,” said Mandar Pitale, Head, Financial Markets, SBM Bank (India).
A report by Care Edge also projects that the central bank will leave policy rates unchanged in August. It noted that any increase in rates later in the 2026-27 financial year would likely depend on a significant rise in inflation or a fresh escalation in geopolitical tensions, while its baseline expectation remains that there will be no further rate hikes during the current fiscal year.
The MPC had last reviewed monetary policy on June 5, when it decided to keep the repo rate unchanged at 5.25%, even as inflationary pressures intensified due to higher crude oil prices and supply disruptions arising from the conflict in West Asia.
At the same meeting, the RBI revised its macroeconomic projections to reflect growing uncertainties.
The central bank lowered its growth forecast for the economy from 6.9% to 6.6% while increasing its inflation projection from 4.6% to 5.1%, citing elevated oil prices, uncertainty in global trade, adverse weather conditions and geopolitical tensions.
Pitale said MPC is expected to deliver cautionary guidance with global oil prices and monsoon remaining key monitorable for future policy actions.
Oil prices moving up in the $90 to $100 range per barrel for the foreseeable future due to sustained tension will once again bring forward a strong case for generalised increase in price pressures ultimately percolating to the demand side. This will create a strong skewness towards rate hikes in the second half of FY26-27.
With inflation risks still evolving and external uncertainties remaining elevated, economists expect the RBI to continue balancing the need to support economic growth with its mandate of maintaining price stability, making a status quo on rates the most likely outcome at the upcoming policy meeting.
Market participants believe the central bank is likely to refrain from changing interest rates despite mounting pressure from elevated global crude oil prices linked to the ongoing conflict in West Asia.
While these developments have increased inflationary concerns, analysts say the domestic economy remains resilient enough for the RBI to avoid an immediate policy shift.
However, inflation continues to face upside risks from elevated global oil prices, a weak monsoon and lower water reservoir levels.
“We expect MPC members will remain watchful of the progress of the monsoon and its impact on food inflation. We expect RBI to remain on hold for now and also keep the stance unchanged,” Sonal Badhan, Economist, Bank of Baroda (BoB) told the paper.
“Present growth-inflation dynamics is pointing towards risks to growth with a manageable inflation trajectory in the immediate future. This, coupled with elevated global uncertainties, may result in MPC not considering the “rate hike” option in a hurry during the forthcoming MPC meeting in August,” said Mandar Pitale, Head, Financial Markets, SBM Bank (India).
A report by Care Edge also projects that the central bank will leave policy rates unchanged in August. It noted that any increase in rates later in the 2026-27 financial year would likely depend on a significant rise in inflation or a fresh escalation in geopolitical tensions, while its baseline expectation remains that there will be no further rate hikes during the current fiscal year.
The MPC had last reviewed monetary policy on June 5, when it decided to keep the repo rate unchanged at 5.25%, even as inflationary pressures intensified due to higher crude oil prices and supply disruptions arising from the conflict in West Asia.
At the same meeting, the RBI revised its macroeconomic projections to reflect growing uncertainties.
The central bank lowered its growth forecast for the economy from 6.9% to 6.6% while increasing its inflation projection from 4.6% to 5.1%, citing elevated oil prices, uncertainty in global trade, adverse weather conditions and geopolitical tensions.
Pitale said MPC is expected to deliver cautionary guidance with global oil prices and monsoon remaining key monitorable for future policy actions.
Oil prices moving up in the $90 to $100 range per barrel for the foreseeable future due to sustained tension will once again bring forward a strong case for generalised increase in price pressures ultimately percolating to the demand side. This will create a strong skewness towards rate hikes in the second half of FY26-27.
With inflation risks still evolving and external uncertainties remaining elevated, economists expect the RBI to continue balancing the need to support economic growth with its mandate of maintaining price stability, making a status quo on rates the most likely outcome at the upcoming policy meeting.
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