Earlier this month, The MPC had voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25 per cent and maintained its neutral stance.
RBI growth projections for 2026-27 was revised by 10 basis points to 6.7 per cent from 6.6 per cent, while retail inflation projection was revised downwards by 10 points to 5 per cent from 5.1 per cent.
“There are signs of a normalisation of inflation from its benign levels seen hitherto. The average inflation last year, when the policy rate, was brought down to 5.25 per cent, was only two per cent. Not only has headline inflation already averaged 3.93 per cent this year, even core excluding precious metals is expected to converge to core inflation in the last quarter of this financial year, with core inflation projected to average 4.3 per cent in 2026-27,” RBI Governor Sanjay Malhotra said in the meeting as per the minutes released on Wednesday.
“This may suggest a recalibration of policy rate,” he said.
However, Malhotra said he would prefer to wait for more certainty to emerge on the inflation trajectory for any recalibration of the policy rate.
“We also need to be 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. Any evidence of these risks materialising may need policy tightening,” he said.
“The scope for any further easing does not seem to exist at the current juncture. Instead, given that the headline inflation is projected to peak to a level as high as 5.9 per cent in Q3 2026-27, a case for a hike may emerge during the course of the year,” Poonam Gupta, MPC Member and RBI Deputy Governor in charge of monetary policy, said.
“The shift in the distribution towards higher inflation numbers warrants a careful vigil. One must look out for the extent of generalisation and risk of inflation expectations getting unanchored before contemplating any rate hike,” Indranil Bhattacharyya, Executive Director, RBI, said.
The emphasis consequently shifts from one baseline rate path to how policy would respond under different economic conditions. On this count, a pause preserves flexibility on timing; it does not necessarily imply an extended pause, he said.
Professor Ram Singh, Director, Delhi School of Economics and MPC Member pointed out that high uncertainty still looms over several key monetary policy indicators.
“While the economy has withstood the conflict spillovers with limited impact so far, the strains are increasingly becoming visible. We have to closely watch if and how inflation-related risks resolve — El Niño’s effects on food inflation and global oil prices,” he said.
“If external shocks worsen or the second-round price effects spread widely, we should be able to swiftly adjust policy to protect macroeconomic stability,” Singh said.
“The forecast normalisation of underlying inflation from earlier benign levels will require close monitoring of the growth-inflation dynamics, for the appropriate time to recalibrate the policy rate,” Saugata Bhattacharya, Economist and MPC Member, said.
“The slight improvement in the growth and inflation outlook of the Indian economy should not be a cause for any complacency,” Dr. Nagesh Kumar, MPC Member and Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi , said.
The concerns arising from the West Asia conflict and the blockade of the Strait of Hormuz have not receded, even as India has made efforts to deal with the situation by diversifying the sources of supply. Trade policy uncertainties have been aggravated, he said.
“We need to be extremely cautious in such a highly uncertain economic environment and be watchful of the emerging geopolitical, trade policy and monsoon-related trends and their effect on India’s economic outlook,” Kumar said.
The next meeting of the MPC is scheduled for October 5 to 7, 2026.