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Informist, Friday, Jun. 19, 2026

 

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee preferred to adopt a "wait and watch" approach despite risks of higher inflation due to the war in West Asia, minutes of the rate-setting panel's June meeting released Friday showed. The committee, which had met on Jun. 3-5, had left the repo rate unchanged at 5.25% and maintained the "neutral" policy stance.

 

Committee members said it was prudent to wait for greater clarity on the war in West Asia and the southwest monsoon before taking a call on raising interest rates, the minutes showed. The rising inflation trajectory for financial year 2026-27 (Apr-Mar) may suggest the need for monetary policy action, RBI Governor Sanjay Malhotra said.

 

"However, I would prefer to wait and watch," Malhotra added. "One, there is high uncertainty in the assumptions made for projections of both inflation and growth on account of several reasons--the duration of the conflict and the disruption in supply chains, the intensity and geographical spread of monsoons and their impact on energy, food, and other commodity prices," he said. 

 

Indeed, the US and Iran have agreed to a ceasefire and the reopening of the Strait of Hormuz, bringing crude oil prices down below $80 per barrel from a high of over $120 a barrel in April. The RBI in its latest projections had assumed crude oil prices at $95 per barrel.

 

"I feel we ought to wait a bit more for global as well as weather-related uncertainties to play out over the coming months before taking a call on whether and when to reverse the policy cycle," RBI Deputy Governor Poonam Gupta said. "At the current juncture, with growth projected to decelerate and inflation yet to become entrenched, I do not see a case for policy tightening to rein in inflation or inflationary expectations. If anything, it could make the economic pain of the ongoing supply shock sharper."

 

Gupta said that once the West Asia conflict is resolved, the outlook could "improve rapidly", warranting a fresh look at the inflation-growth dynamics. "Therefore, it would be prudent to adopt a wait and watch approach rather than make an early or pre-emptive policy pivot," the deputy governor noted.

 

At the June meeting, the RBI raised its CPI inflation projection for FY27 by 50 bps to 5.1%. CPI inflation is seen rising to 5.9% in the December quarter, near the upper bound of the RBI's 2-6% tolerance band with 4% as the medium-term target. CPI inflation rose to 3.93% in May but is on track to be lower than the RBI's projection of 4.2% in the June quarter.

 

Malhotra said the current inflation merits attention, especially when the outlook is clouded. Core inflation remains contained, suggesting that underlying inflation pressures remained subdued, the governor said. The central bank projects core inflation in FY27 at 4.7%. "Excluding precious metals, the core inflation is even lower than the target," Malhotra said.

 

The RBI also lowered its GDP growth forecast for FY27 by 30 bps to 6.6%, with growth seen between 6.3% and 6.8% throughout the year. India's GDP grew at a higher-than-estimated 7.8% in the March quarter and 7.7% in FY26.

 

"The chances of a policy mistake remain heightened given the two-way risks on the inflation-growth outlook," Saugata Bhattacharya, an external member of the Monetary Policy Committee, said. Given the growth and inflation forecasts, "we must now closely monitor second order input cost transmission getting embedded in retail inflation," Bhattacharya said. "This will depend on the intensity and duration of the energy shock."

 

While panel members preferred to wait for more data to see if inflation was getting generalised, they sounded caution on the risk to the inflation outlook, particularly from the projected below-normal monsoon rains and the likely El Nino conditions. The southwest monsoon has been off to a slow start this year, causing alarm on kharif sowing and higher food prices. During Jun. 1–18, India recorded 48.5 millimetres of showers, which is 40?low the normal for the period, according to data from the India Meteorological Department.

 

"The El Nino weather phenomenon can significantly impact agricultural growth and rural demand," external member Ram Singh said, as per the minutes. "In such an environment, the MP (monetary policy) should not dampen the modest but encouraging signs of a pick-up in private investment. We must design policy carefully to support growth without risking the unanchoring of inflation expectations." 

 

According to Singh, there is no risk of inflation expectations getting unanchored, thanks to the government's steps on keeping energy and fertiliser prices in check. But as long as the West Asia conflict persists and the impact of the El Nino weather pattern remains unquantified, it makes sense for monetary policy to retain all the flexibility needed to respond to evolving inflation and growth trajectories, he said, adding that the "neutral" policy stance provides the committee with maximum operational flexibility.

 

"If external shocks worsen or the second-round price effects spread widely, the neutral stance allows us to adjust policy to protect macroeconomic stability," Singh noted. The Delhi School of Economics director said his long-term policy preference remains growth-supportive.

 

Singh said the prevailing real interest rates--rate of return over and above the expected rate of inflation in an economy--make for a growth-supportive monetary policy. "If the inflation-related risks resolve favourably--food inflation remaining stable, global oil prices stabilising below $80 per barrel, and the Federal Reserve avoiding hawkish decisions--in my view, the MPC will have the room to continue to be growth-supportive," he said.  End

 

US$1 = INR 94.32

 

Reported by Shubham Rana

Edited by Rajeev Pai

 

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