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Informist, Wednesday, Aug. 5, 2026

 

MUMBAI - Radhika Rao, senior economist and executive director, DBS Bank, said the following on the Reserve Bank of India's third bi-monthly monetary policy statement for the financial year 2026-27 (Apr-Mar), detailed Wednesday:

 

The RBI signalled patience, but not complacency. By keeping the repo rate unchanged and retaining a neutral stance, the MPC has preserved flexibility while assessing whether recent inflation pressures remain temporary or evolve into a broader inflation cycle. The overall guidance was, however, less hawkish than anticipated. The Committee highlighted that signs of pass-through from higher food and fuel prices remain limited, while underlying inflation pressures continue to be relatively contained. This softer tone was reinforced by a modest downward revision to the inflation trajectory and a slight upward revision to the growth outlook. 

 

We see limited scope for a rate hike at the October meeting, consistent with our baseline expectation that policy rates remain unchanged through the rest of FY27. The MPC appears comfortable remaining on hold for now, given the absence of broad-based inflation pressures and lingering uncertainty around the inflation outlook. However, they retained sufficient flexibility to act if supply-side shocks begin to feed into more persistent core inflation.

 

The comparison between the inflation trajectory and the policy rate has brought the real rate debate back into focus. RBI projections imply inflation of around 5.3-5.5% over the year ahead, compared with a repo rate of 5.25%, implying a near-zero real policy rate buffer. This stands in contrast to earlier policy regimes where policymakers often referred to a positive real rate cushion of roughly 1.0-1.5 ppt. While the MPC did not explicitly emphasise this issue, a narrowing real policy rate cushion could become increasingly relevant if growth remains resilient and inflation risks persist.

 

Inflation risks remain skewed to the upside, particularly from oil prices, weather-related disruptions and potential broadening of input-cost pressures. At the same time, growth appears to be holding up better than expected, with the possibility that GDP growth exceeds 7% in 1QFY27. As a result, the MPC may gradually lay the groundwork for policy normalisation later in FY27, should inflation become more persistent and broad-based.

 

With rates unchanged and no immediate signal of tightening, market attention is likely to shift back to macro developments between now and the next policy review. The expected recovery in portfolio inflows, together with continued flows through RBI swap windows, should provide a constructive backdrop for domestic financial markets. Meanwhile, movements in crude oil prices, bond yields, and the rupee and inflation expectations will remain key determinants of market pricing for the policy path ahead.

End

 

Compiled by Meera Nair

Filed by Himanshi Gupta

 

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