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Informist, Thursday, Jul. 30, 2026

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee is expected to keep interest rates on hold and maintain a neutral policy stance Wednesday, owing to uncertainty over the impact of the war in West Asia and the El Nino condition on economic activity and inflation. All the 18 economists and market participants polled by Informist said the Monetary Policy Committee will hold the repo rate at 5.25% at the end of its three-day meeting Wednesday.

 

Most economists said keeping the policy stance unchanged at neutral will give the rate-setting panel flexibility to respond to any future shock arising from the war in West Asia. The committee had left the repo rate unchanged at 5.25% in the last three meetings after lowering it by 125 basis points in 2025, the biggest cumulative easing in a calendar year since 2019. The repo rate was last raised in February 2023. 

 

"We do not expect a change in policy rate or stance in this policy. Given continued lingering uncertainty around oil prices as well as monsoons, we think the RBI is likely to keep its inflation forecast unchanged as well," Sakshi Gupta, principal economist at HDFC Bank, said. "The policy is expected to be a wait and watch policy as RBI navigates impact of already announced measures and lingering macro risks."

 

RBI Governor Sanjay Malhotra late last month flagged risks to both growth and inflation but also said that it was premature to talk about repo rate hikes by the Monetary Policy Committee in the coming months.  

 

Since the June policy meeting, not much has changed on the external front. While a peace deal between the US and Iran came into effect mid-June, things took a turn for the worse soon after, with both the countries trading strikes. The price of Brent crude fell to pre-war levels around $70 per barrel in early July but has swung back to above $90 per barrel as the war in West Asia has escalated again, keeping uncertainty elevated. 

 

However, most poll respondents expect the RBI to retain its CPI inflation projection for 2026-27 (Apr-Mar) at 5.1%, amid uncertainty related to crude oil prices and the monsoon. This is despite India's headline inflation rising to an 18-month high of 4.38% in June, above the RBI's medium-term target of 4%.

 

Malhotra had said that the RBI is unsure about the second-round impact of inflation, calling the current inflationary impact of crude supply disruptions "one-time". Poll respondents said, apart from crude oil prices, the focus will remain on the rate-setting panel's commentary on the impact of El Nino on the monsoon. 

 

The India Meteorological Department has projected the southwest monsoon rainfall to be below normal at 90% of the long-period average. As of Thursday, the cumulative rainfall over the country has been deficient at 86% of the long-period average. The finance ministry recently said that severe monsoon deficit can translate into elevated food inflation, weakened rural demand, and fiscal pressure from higher subsidy burdens.

 

"Rising inflation prints create a textbook case for higher rates. But responding to fleeting deviations from the medium-term target of 4?n create unintended consequences, especially as inflation has stemmed from supply disruptions, geopolitical uncertainty remains elevated, and risks to growth are still being assessed," Barclays said in a note. 

 

The RBI is also expected to keep its GDP growth forecast broadly unchanged at 6.6%, economists said. "I don't expect the RBI to change any of its forecasts on GDP and CPI. There is too much oil uncertainty. It is best to keep forecast buffers," Dhiraj Nim, economist and foreign exchange strategist at ANZ Banking Group, said. 

 

Further, economists do not expect any measures by the central bank to support the rupee, with a slew of steps already announced in June, the impact of which will be seen in the coming months. The central bank in June announced a host of measures to attract foreign capital, including concessional foreign exchange swap facilities for banks' foreign currency non-resident deposits and public sector borrowings, expanded routes for government securities, and changes to export realisation norms. Malhotra recently said banks had mobilised nearly $32 billion through these measures so far. 

 

"The environment facing the MPC is no less challenging today than it was in June. The difference is that, unlike then, foreign inflows have improved at the margin, erasing tail risk for the currency. This should allow the MPC to remain on pause at the upcoming Aug. 5 meeting," Barclays said.

 

The following are the expectations of respondents from the Aug. 3–5 meeting of the Monetary Policy Committee:

 

ORGANISATION	AUGUST MPC MEET EXPECTATION
ANZ Banking Group	Status quo
Bank of Baroda	Status quo
Barclays	Status quo
CSB Bank	Status quo
Emkay Global Financial Services	Status quo
HDFC Bank	Status quo
IDFC FIRST Bank	Status quo
ICICI Securities Primary Dealership	Status quo
India Ratings	Status quo
Karur Vysya Bank	Status quo
Kotak Mahindra Bank	Status quo
Motilal Oswal Financial Services	Status quo
SBM Bank India	Status quo
Shinhan Bank India	Status quo
Standard Chartered Bank	Status quo
STCI Primary Dealership	Status quo
Sunidhi Securities	Status quo
YES Bank	Status quo

 

End

 

US$1 = INR 95.68

 

With inputs from Shweta

 

Edited by Akul Nishant Akhoury

 

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