Headline retail inflation accelerated to 4.4 per cent in June from 3.9 per cent in May, breaching the RBI’s 4 per cent target for the first time since January 2025
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The Reserve Bank of India’s Monetary Policy Committee (MPC) is expected to keep the benchmark repo rate unchanged at 5.25 per cent and retain its “neutral” stance at its August 3-5 meeting, despite rising inflationary pressures stemming from higher crude oil prices, a weakening rupee, the West Asia conflict and concerns over the impact of El Nino.The MPC has left the repo rate unchanged in its last three meetings while maintaining a neutral policy stance for six consecutive meetings.Headline retail inflation accelerated to 4.4 per cent in June from 3.9 per cent in May, breaching the RBI’s 4 per cent target for the first time since January 2025 and touching an 18-month high.In June, the RBI raised its FY27 inflation forecast to 5.1 per cent from 4.6 per cent and lowered its GDP growth projection to 6.6 per cent from 6.9 per cent, reflecting emerging inflation concerns and global uncertainties.Price Stability Remains Key FocusRBI Governor Sanjay Malhotra has underscored that price stability remains the central bank’s primary mandate amid a challenging global backdrop. “Our primary mandate is price stability. Although generalised inflation pressures continue to remain modest so far, the risk of higher food, fuel, and other input prices translating into a broad-based inflation environment is real. However, our team is assessing the growth-inflation dynamics,” Malhotra told BusinessLine in an interview on July 26.He added that the MPC would take an appropriate decision based on incoming data and the evolving outlook, noting that the current policy rate was assessed as appropriate in June amid heightened global uncertainties.The Governor also indicated that while some signs of inflation pressures becoming broader-based are emerging, they remain modest. “We are seeing some signs, but they are modest. “Let's wait for more data,” he said.Economists Expect “Neutral Pause”Barclays Securities (India) economists Aastha Gudwani and Amruta Ghare expect the MPC to continue with a “neutral pause”, highlighting that the recent rise in inflation is largely supply-driven and that premature policy tightening could hurt growth.Bank of Baroda Economist Sonal Badhan expects no change in rates or stance but believes the RBI could use the policy review to prepare markets for a future hike. She cited risks from shipping costs through the Strait of Hormuz and Red Sea, along with food prices, and expects at least one rate hike in H2FY27.CARE Ratings Chief Economist Rajani Sinha said the policy outlook will depend on how growth and inflation evolve. While a stable external environment could allow the MPC to look through the near-term inflation spike, any escalation in geopolitical tensions and energy prices may increase the likelihood of a rate hike later in the fiscal year.Published on August 2, 2026
