The minutes of Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting showed that rate-setting panel was broadly agreed that rising food and fuel prices posed inflation risks, but there was limited evidence of broad-based price pressures, warranting a wait-and-watch approach, while voting for the status quo on interest rates. The MPC met on August 3-5 and unanimously decided to keep the benchmark policy rate (repo) unchanged at 5.25%, opting to wait for greater clarity on whether higher energy costs triggered by the US-Iran conflict feed into broader inflationary pressures. During the meeting RBI Governor Malhotra highlighted that the Indian economy has performed better than expected in Q1:2026-27 despite the conflict in West Asia disrupting supply chains, heightened uncertainty, and an erratic monsoon.
On status quo, Malhotra pointed that monetary response to a supply-side shock is warranted when there are signs of it leading to a generalisation of inflation, de-anchoring of inflation expectations or persistent inflation. While risks remain, evidence of price pressure is limited. However, he emphasized the need to remain watchful as the risks of higher food, fuel and other input prices translating into a broad-based increase in inflation and de-anchoring of expectations persist and added that any evidence of these risks materialising may need policy tightening.
Besides, external MPC member Nagesh Kumar has said that the slight improvement in the growth and inflation outlook of the Indian economy should not be a cause for any complacency. He added that the agriculture outlook continues to remain clouded by the El Nino, although the monsoon deficit has been mitigated in July in several parts of the country. On growth front, another external MPC member Ram Singh noted that the growth rate of the economy at about 7% without any noticeable signs of demand-driven heating (as indicated by the core inflation data that has been consistently below 4% for quarter after quarter until now), suggests that the potential growth rate consistent with a neutral interest rate is well above 7%.
