MPC Meet: RBI Likely To Hold Rates On Aug 5 Amid Inflation Concerns

New Delhi, Aug 3 (KNN) The Reserve Bank of India (RBI) is expected to keep interest rates unchanged at its Monetary Policy Committee (MPC) meeting on August 5, as economists see limited justification for an immediate policy move despite emerging inflation risks.

A stable rupee, resilient domestic growth, and uncertainty over crude oil prices are shaping expectations. High-frequency indicators such as industrial output and GST collections suggest that domestic economic activity remains strong.

Inflation outlook tempers easing expectations

Economists indicate that inflation is likely to stay elevated in the coming quarters, reducing the case for further monetary easing. 

Soumya Kanti Ghosh, Chief Economist, SBI Group, said, “With CPI inflation likely to remain above 5 per cent for the next two quarters and likely average of 5 per cent in FY27, we believe RBI will maintain status quo,” as quoted by TOI.

Although the MPC may hold rates, prevailing macroeconomic pressures—ranging from oil volatility and rupee weakness to external flow concerns and higher inflation projections—make an explicitly dovish stance unlikely, he added.

Ghosh projected quarterly inflation at 3.9 per cent in Q1, rising to 5.2 per cent in Q2, 5.6 per cent in Q3, and easing slightly to 5.0 per cent in Q4.

External risks remain key concern

Global factors continue to pose uncertainties. Volatility in West Asia and its impact on crude oil prices remain a major risk, although concerns over El Niño have eased, reducing pressure for immediate policy support.

Ghosh also noted that India’s short-term forward foreign exchange position has declined by USD 13 billion, alongside cumulative foreign inflows of about USD 35 billion through FCNR(B) deposits and related channels.

Growth outlook remains firm

He said, “A rate hold can still move markets if the statement shifts the balance between growth comfort and inflation / FX vigilance.”

On growth, Ghosh expects India’s real GDP to perform better than the RBI’s earlier projection of 6.6 per cent for the first quarter of FY27, estimating it at around 7.0 per cent.

He also highlighted the positive Indian Ocean Dipole, which stood at +0.44°C in late July, suggesting improved rainfall conditions that could offset earlier monsoon concerns.

Rupee stability reduces pressure for hawkish shift

Analysts at Goldman Sachs said the rupee has stabilised following recent RBI measures to attract foreign capital, limiting the need for a more aggressive policy stance in the near term.

Santanu Sengupta and Arjun Varma of Goldman Sachs, noted, “With the INR having broadly stabilised following the RBI’s recent FX measures, we see limited need for the MPC to turn more hawkish near term,” as cited by TOI.

They also expect the RBI to modestly lower its inflation forecast, noting that crude oil prices remain below the USD 95 per barrel assumption used in the June policy review.

(KNN Bureau)