RBI MPC strikes caution with growth cut, inflation risk: Sumeet Bagadia

The Reserve Bank of India’s Monetary Policy Committee (MPC) maintained the repo rate at 5.25% during its latest meeting, adopting a data-dependent approach amid conflicting pressures. The MPC revised India’s FY27 GDP growth projection downward to 6.6% from 6.9%, reflecting concerns over geopolitical tensions, higher energy prices, and global financial market volatility. Quarterly growth forecasts were also adjusted lower, with Apr-Jun 2025 growth now at 6.6% (down from 6.8%), Jul-Sep at 6.3% (from 6.7%), and Oct-Dec at 6.5% (from 7.0%). On inflation, the MPC raised its FY27 Consumer Price Index (CPI) forecast to 5.1% from 4.6%, with quarterly projections increasing across the board—Q1 at 4.2% (from 4.0%), Q2 at 5.1% (from 4.4%), Q3 at 5.9% (from 5.2%), and Q4 at 5.4% (from 4.7%). While inflation remains below the 6% upper tolerance, the committee highlighted risks from cost pressures and monsoon performance, warning that disinflation may stall. The decision to hold rates reflects a deliberate balance between growth and inflation risks. The MPC emphasized monitoring key factors like monsoon developments, crude oil prices, and services inflation before deciding on future policy moves. If inflation persists or intensifies, the door remains open for tighter monetary conditions, though further cuts are unlikely unless growth weakens significantly. The RBI’s balance sheet expanded by 20.6% year-on-year to ₹0.91 trillion in FY26, driven by increased gold holdings and investments. To support the rupee amid external volatility, the central bank also introduced a four-month concessional forex swap facility. Markets will now closely watch food inflation trends, crude oil movements, and services sector data to gauge the MPC’s next steps.