RBI MPC keeps repo rate unchanged at 5.25%, maintains 'neutral' stance

RBI MPC August meeting: At its policy meeting, held between August 3 and August 5, the committee maintained its 'neutral' stance

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Wednesday kept the repo rate unchanged at 5.25 per cent. RBI Governor Sanjay Malhotra announced the decision after the policy meeting.

 

At its policy meeting, held between August 3 and August 5, the committee maintained its 'neutral' stance.

 

The Standing Deposit Facility (SDF) rate remained at 5 per cent, while the Marginal Standing Facility (MSF) rate and the bank rate stayed at 5.5 per cent.

 

The RBI Governor said underlying inflation has remained under control for some time and is expected to converge with overall core inflation by the end of the current financial year. 

 

 

"Headline inflation is expected to rise further in the near term. It is expected to peak in Q3 of this year, primarily again due to food and fuel, and thereafter moderate."

 

Speaking on the economy, Malhotra said growth remains supported by strong domestic demand, steady expansion in the manufacturing and services sectors, and healthy export performance.

 

RBI MPC: Growth outlook

 

The RBI Governor said the central bank has projected real GDP growth at 6.7 per cent for FY27.

 

Highlighting domestic demand, Malhotra said, "Private consumption continued to be driven by buoyant discretionary. Overall, the Indian economy performed better than expected in Q1."

 

He added that the renewed escalation of the conflict since the first week of July has increased volatility in energy prices.

 

Despite the economy's resilience, he said growth is expected to be lower in the current financial year. "The outlook, however, is hazy because of the uncertainties regarding South's global trade policy. There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action," Malhotra said.

 

The quarterly growth projections are as follows:

• Q1 FY27: 7 per cent

• Q2 FY27: 6.4 per cent

• Q3 FY27: 6.5 per cent

• Q4 FY27: 6.8 per cent 

 

RBI MPC: Inflation forecast

 

The central bank projected CPI inflation for FY27 at 5 per cent. 

 

The quarterly inflation forecasts are:

• Q2 FY27: 4.7 per cent 

• Q3 FY27: 5.9 per cent 

• Q4 FY27: 5.5 per cent  

 

Malhotra said, "The impact of El Nino on the temporal and spatial distribution of rainfall remains a major risk. Global oil prices have also remained highly volatile, with sharp two-way movements triggered by geopolitical developments. This blurs the near-term inflation outlook."

 

While generalised inflation pressures remain modest so far, he said that "the risk of second-round effects from higher food, fuel and other input costs translating into broader-based inflation persists".   Commenting on the policy decision, Vivek Iyer, partner and financial services risk advisory at Grant Thornton Bharat, said, "Food and fuel inflation continue to be a variable that will be closely watched, given agricultural dependencies on climate factors and external supply chain challenges from a energy security standpoint. Government focus on fiscal policy on these two variables, helps the RBI to focus on growth through monetary policy."

Strengthening the cooperative sector

 

Malhotra said the central bank will issue draft guidelines to restart the licensing of urban cooperative banks (UCBs), incorporating feedback received on its earlier discussion paper.

 

He added that the RBI will also release draft directions following a comprehensive review of the credit monitoring framework for rural cooperative banks. The review takes into account the experience gained and changes since the framework was last updated in 2008.

 

The central bank has also proposed to "harmonise and standardise the regulatory framework on interest rates" on advances across all regulated entities.  The MPC's next policy meeting is set to take place from October 5 to 7.