In its August meeting, the MPC kept policy rates unchanged, signaling a data-dependent approach amid volatile global markets and unpredictable weather conditions. Recent data flows points to an upside risks to inflation. Crude oil prices crossed the USD 100 a barrel mark. Headline retail inflation rose to 4.82 per cent in August from 4.45 per cent in July. RBI has projected retail inflation at 5 per cent for FY27, expected to peak to a level of 5.9 per cent in the third quarter of 2026-27. Food inflation increased to 6 per cent in August and wholesale price index surged to 9.92 per cent.
The rainfall deficiency and its impact on food inflation will be another key factor to watch out for. The all-India cumulative rainfall was 15 per cent below the long period average. Though sowing has progressed well, it does not necessarily mean the crop sector is out of danger. Crisil’s Deficient Rainfall Impact Parameter (DRIP) points to higher vulnerability in cotton, bajra, maize, tur, groundnut and soybean. On the monetary policy front, the leeway to wait on the sidelines may be narrowing, if one goes by the recent set of data. In fact, in the last MPC meeting, some members had hinted at possible recalibration of rates.
RBI Governor Sanjay Malhotra noted there are signs of a normalisation of inflation from its benign levels. He stressed on the need to be watchful as the risks of higher food, fuel and other input prices translating into a broad-based increase in inflation. Any evidence of these risks materialising may need policy tightening, he said.
In its previous monetary policy, RBI projected real GDP growth at 6.7 per cent in FY2027. The Indian economy recorded robust growth of 7.8 per cent in Q1, FY2027. External agencies have upgraded India’s growth forecast in the range of 6.9 per cent to 7.1 per cent for FY2027. With geopolitical tensions re-escalating in West Asia, the global economy is again confronted with rising energy prices, and increased volatility across various segments of the financial markets. Overall, the economy performed strongly despite external headwinds, RBI Bulletin said. India’s financial and external sectors are drawing strength from the real economy, although geopolitical tensions and weather related uncertainties are acting as key downside risks, it noted. Meanwhile, the private corporate investment outlook is expected to remain healthy, although heightened global uncertainties are likely to temper the investment sentiment. Also, the festive season which is a key demand period is kicking in. With enough hints thrown and the tide turning on the inflation front, it will be interesting to see what stance the MPC takes. n