The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) began its three-day monetary policy meeting on Monday, with economists and market participants widely expecting the central bank to keep the benchmark repo rate unchanged while maintaining a cautious policy stance amid evolving inflation trends and global uncertainties.
According to market experts, the RBI is expected to prioritise domestic inflation, liquidity conditions and economic growth over global monetary policy developments, while closely monitoring external risks such as crude oil prices and monetary tightening in advanced economies.
Vinay Pai, Managing Director and Head of Fixed Income at Equirus Capital, said the upcoming policy decision is likely to be guided primarily by India’s macroeconomic conditions rather than developments in global central banks.
He said the hawkish stance of the US Federal Reserve has pushed US Treasury yields higher, narrowing the yield gap between Indian and US bonds. While the immediate impact on domestic bond markets has been limited, persistently elevated global yields could moderate foreign portfolio investment in Indian debt and put mild upward pressure on government bond yields.
Pai added that under such circumstances, the RBI is likely to maintain a neutral and cautious approach instead of aggressively easing monetary policy. He also said the central bank would continue to ensure adequate domestic and foreign currency liquidity to maintain orderly financial market conditions.
Mandar Pitale, Head of Financial Markets at SBM Bank (India) Ltd., said the policy review comes amid higher crude oil prices following the Iran conflict, which has increased inflationary risks, though these remain manageable for now.
He said the current growth-inflation dynamics indicate risks to economic growth alongside a manageable inflation outlook, making an immediate rate hike unlikely during the August policy review.
Pitale added that the MPC is expected to issue cautious guidance, with global crude oil prices and the progress of the monsoon remaining key factors for future policy decisions. However, he cautioned that if crude oil prices remain in the USD 90-100 per barrel range for a prolonged period, inflationary pressures could intensify, strengthening the case for a rate hike in the second half of the financial year.
Echoing similar views, Maulik Patel, Head of Research at Equirus Securities, said the MPC is expected to leave policy rates unchanged in August.
He noted that wholesale and retail inflation have shown an uptick due to higher petrol and diesel prices, second-round inflationary effects and weather-related disruptions affecting food prices. According to Equirus Securities, consumer price inflation (CPI) is projected at 4.9 per cent for the current financial year, with upside risks.
Patel also pointed to tightening monetary conditions in advanced economies, particularly signals from the US Federal Reserve indicating the possibility of another rate hike later this year. He said these developments would remain an important consideration for the RBI while determining the timing of any future policy action.
Equirus Securities expects the RBI to consider a 25-basis-point rate hike during the December monetary policy review.
At the time of reporting, Brent crude was trading at around USD 83.90 per barrel, while WTI crude oil was trading at approximately USD 80.15 per barrel.
-ANI
