New Delhi: The RBI’s rate-setting panel broadly agreed that rising food and fuel prices posed inflation risks, but there was limited evidence of broad-based price pressures, warranting a wait-and-watch approach, while voting for the status quo on interest rates, the MPC meeting minutes released on Wednesday showed.
Reserve Bank Governor Sanjay Malhotra-headed six-member Monetary Policy Committee (MPC), which met on August 3-5, unanimously decided to keep the benchmark policy rate (repo) unchanged at 5.25 per cent, opting to wait for greater clarity on whether higher energy costs triggered by the US-Iran conflict feed into broader inflationary pressures.
The committee noted that the Indian economy remained resilient despite global headwinds, with domestic demand, investment and exports providing support to growth.
However, uncertainty remained due to geopolitical developments, volatile oil prices, monsoon and risks associated with El Nino.
According to the minutes, Governor Malhotra said that despite the conflict in West Asia disrupting supply chains, heightened uncertainty, and an erratic monsoon so far, the Indian economy has performed better than expected in Q1:2026-27.
Monetary response to a supply-side shock is warranted when there are signs of it leading to a generalisation of inflation, de-anchoring of inflation expectations or persistent inflation. While risks remain, evidence of this so far is limited, Malhotra said.
“…I would prefer to wait for more certainty to emerge on the inflation trajectory in terms of the persistence of realised prints at these or higher levels, the forecast and the likely levels to which inflation may normalise and settle, for any recalibration of the policy rate,” he said.
The Governor also stressed the need to remain watchful as the risks of higher food, fuel and other input prices translating into a broad-based increase in inflation and de-anchoring of expectations persist.
“Any evidence of these risks materialising may need policy tightening,” he opined.
Deputy Governor and MPC member Poonam Gupta was of the view that with persistent uncertainty on account of global developments and weather-related risks, the best course of action would be to wait and watch a bit more.
“This would allow for the weather-related uncertainties to fully settle; to ascertain how far the supply-side inflation is getting entrenched; and to get some more clarity on the global front,” she said.
RBI Executive Director and MPC Member Indranil Bhattacharyya opined that in a highly uncertain environment, economic agents are better served by framework guidance than by any explicit forward guidance about the future path of policy.
He also noted that there has been limited pass-through so far of spikes in food and fuel inflation, suggesting that inflation is yet to get broad based.
The three-external members in MPC — Nagesh Kumar, Saugata Bhattacharya, and Ram Singh — too had voted for continuing the pause of repo rate.
Nagesh Kumar said the slight improvement in the growth and inflation outlook of the Indian economy should not be a cause for any complacency.
The agriculture outlook continues to remain clouded by the El Nino, although the monsoon deficit has been mitigated in July in several parts of the country, he said.
“The concerns arising from the West Asia conflict and the blockade of the Strait of Hormuz have not receded, even as India has made efforts to deal with the situation by diversifying the sources of supply,” Kumar said, and added that trade policy uncertainties have been aggravated.
According to the minutes, Bhattacharya said the forecast normalisation of underlying inflation from earlier benign levels will require close monitoring of the growth-inflation dynamics, for the appropriate time to recalibrate the policy rate.
Ram Singh said the growth rate of the economy at about 7 per cent 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 per cent.
“Understanding all these issues is important from a monetary policy perspective. The incoming data will be crucial,” he added.
The next meeting of the MPC is scheduled for October 5 to 7, 2026.
The government has tasked the RBI to ensure consumer price index (CPI) based inflation remains at 4 per cent with a margin of 2 per cent on either side.
According to the Reserve Bank of India Act, 1934, the central bank has to publish minutes on the 14th day after every meeting of the MPC.
