More Stories

Informist, Wednesday, Aug. 19, 2026

 

By Aaryan Khanna

 

NEW DELHI – Members of the Reserve Bank of India's Monetary Policy Committee flagged the possibility of a rate hike as a response to consistent inflationary pressures in the minutes of their Aug. 3 to Aug. 5 meeting. The tone was a sharp departure from the commentary of RBI Governor Sanjay Malhotra, where he suggested the panel may look through near-term inflationary pressures as the trajectory of CPI inflation was falling starting in the March quarter.

 

External member Ram Singh highlighted that CPI forecasts delivered at the August meeting show an upward deviation from the RBI's 4% target that is both significant and may persist for several quarters. The central bank trimmed its CPI inflation forecast for 2026-27 (Apr-Mar) by 10 basis points to 5.0%, but sees headline inflation averaging 5.9% in the December quarter, 5.5% in the March quarter and 5.3% in the first quarter of the financial year starting April. Singh noted the prints were within the flexible inflation targetting band of 2-6%. 

 

"...the scope for any further easing does not seem to exist at the current juncture," RBI Deputy Governor Poonam Gupta said in the minutes. "Instead, given that the headline inflation is projected to peak to a level as high as 5.9% in Q3 2026-27 (Oct-Dec), a case for a hike may emerge during the course of the year."

 

Several MPC members noted that granular data on retail inflation in June, including core CPI inflation, did not suggest a demand-side build-up of price pressures. Governor Malhotra noted risks to de-anchoring inflation expectations may need policy tightening but limited evidence on such a case. This was one of the reasons that the members pointed to unanimously holding the policy repo rate at 5.25% and preferring to keep the policy stance "neutral".

 

At the same time, external member Saugata Bhattacharya warned that the persistence of high fuel prices is likely to lead to second-round inflation. Singh said RBI surveys pointed to a pass-through of cost pressures to the headline CPI. RBI Executive Director Indranil Bhattacharyya said retail inflation was clearly on an upward path food and fuel inflation spikes had only a limited pass-through so far. Inflation was yet to get broad-based and the extent of that generalisation would be important to gauge before any increase in the policy repo rate, he said.

 

Even external member Nagesh Kumar said backward-looking indicators showed the supply-side nature of the current inflation rise, but said the improved outlook on growth and inflation in FY27 should not be a cause for complacency. Members also looked for more certainty on a deficient monsoon and its impact of food inflation in the coming months before committing to monetary policy action at the August meeting.

 

"Not only has headline inflation already averaged 3.93% this year, even core excluding precious metals is expected to converge to core inflation in the last quarter of this financial year, with core inflation projected to average 4.3% in 2026-27," Malhotra said. "This may suggest a recalibration of (the) policy rate."

 

Two external members also pointed to low real interest rates as cause for concern, with Singh pointing out a potential impact on savings and investment. The RBI's projections show retail inflation averaging 5.35% in the 12 months to June, above the policy repo rate of 5.25%. The negative real interest rate encourages consumption and investment, potentially fuelling inflation as it disincentivises savers. 

 

GROWTH

Even though members diverged somewhat on their concerns over the incoming inflation prints, they were unified in their assessment of growth remaining resilient. Kumar pointed to higher capacity utilisation, robust credit growth to industry, healthy private consumption, and front-loading of government capital expenditure as a key reason for strong growth trends in the June quarter.

 

The RBI raised its GDP growth forecast for Apr-Jun by 30 bps to 7.0% at the August meeting. The data is scheduled for release on Aug. 31. Average industrial growth for the first quarter of 2026-27 (Apr-Mar) was 5.7% on year, while the index of services production showed a strong rise in 16 of the 19 sectors it tracked in May.

 

Deputy Governor Gupta further said improved rainfall had led to an increase in reservoir levels and the pace of sowing, while oil and energy products were available more easily than June, meriting a more positive outlook on growth. In Malhotra's assessment, the growth-inflation dynamics for the economy at the August policy meeting were similar to that in June. He described the FY27 growth forecast of 6.7% as robust, given the global and domestic headwinds. 

 

"...the growth rate of the economy at about 7% without any noticeable signs of demand-driven heating (as indicated by the core inflation data that has been consistently below 4% for quarter after quarter until now), suggests that the potential growth rate consistent with a neutral interest rate is well above 7%," Singh said. "The incoming data will be crucial."  End

 

Edited by Deepshikha Bhardwaj

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.