RBI kept the repo rate unchanged at 5.25% in the August MPC meeting, raised growth forecast to 6.7%

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Highlights

RBI decided to keep the repo rate at 5.25% and the policy stance neutral in the August 2026 MPC meeting.
For 2026-27, GDP growth is projected at 6.7% and CPI inflation at 5.0%; CPI was 4.4% in June 2026.
RBI stated that future policy rate changes will depend on the spread of high inflation driven by food and fuel.

This article was translated from the original. Read the original version by our correspondent here.

Decisions and Projections from the August Meeting

According to the Reserve Bank of India, as per the minutes released on August 19, 2026, the Monetary Policy Committee unanimously decided to keep the policy repo rate unchanged at 5.25% under the liquidity adjustment facility during its 62nd meeting held from August 3 to 5, 2026. The Standing Deposit Facility rate remains at 5.00%, and the Marginal Standing Facility rate and Bank Rate remain at 5.50%, with the policy stance maintained as neutral.

The committee noted that the global scenario in 2026 so far has been shaped by sharp market volatility, persistent inflation concerns, and shifting policy expectations. The resumption of conflict in West Asia in July, oil price volatility, sticky inflation expectations, and fragile public finances in major economies were highlighted as downside risks.

Domestically, the RBI assesses that demand remained steady in the first quarter of 2026-27. Private consumption is strong, investment is resilient based on indicators related to construction, capital goods, and bank credit, while expansion in services exports and improvement in goods exports have also supported external demand.

The committee projected real GDP growth at 6.7% for 2026-27, with estimates of 7.0% in Q1, 6.4% in Q2, 6.5% in Q3, and 6.8% in Q4. Growth for Q1:2027-28 is projected at 7.3%, with risks assessed as broadly balanced.

On inflation, CPI rose to 4.4% in June 2026, moving above target after 16 consecutive months below it. The RBI stated that this increase was mainly due to food and fuel inflation, while core inflation remained steady at 3.9% in May-June and, excluding precious metals, ranged between 2.3% and 2.5%.

CPI inflation for 2026-27 is projected at 5.0%, including estimates of 4.7% in Q2, 5.9% in Q3, and 5.5% in Q4. For Q1:2027-28, inflation is projected at 5.3%, while core inflation for 2026-27 is estimated at 4.3%.

Cautious Policy Stance and Market Signals

Committee members stated in their remarks that the current elevated headline inflation is mainly driven by supply-side shocks, especially food and fuel, and so far, there are limited clear signs of broad-based demand-driven price pressures. For this reason, several members emphasized the need for greater clarity on the spread of inflation, volatility in expectations, and second-round effects before any further rate action.

Members also highlighted that while growth remains resilient, it may be somewhat softer in 2026-27 compared to earlier. Deficient southwest monsoon, El Niño, geopolitical tensions, global trade policy, and U.S. tariffs are seen as major uncertainties for India's outlook.

Some members indicated that if food and fuel shocks translate into broader inflation or if inflation expectations become unanchored, there may be a need for policy rate recalibration or tightening going forward. Meanwhile, maintaining a neutral stance allows the RBI flexibility to respond to the evolving growth-inflation equation.

According to the minutes, the next MPC meeting is scheduled between October 5 and 7, 2026. The key message for the market is that the RBI is currently in a wait-and-watch mode, but the stance could change quickly if signs of broadening inflation emerge.

Our previous report discussed India's retail inflation (CPI) rising to 4.45% in July 2026 and the pressures mainly from food and services categories. That article also noted that due to adverse base effects, monsoon uncertainty, and West Asia tensions, CPI could approach or exceed 5% in August-September, raising the possibility of an RBI rate hike in December 2026.

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