4 min readUpdated: Aug 3, 2026 04:28 AM IST
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is widely expected to leave the key policy repo rate unchanged at its forthcoming meeting on August 5, amid the continuing conflict in West Asia and elevated global crude oil prices, experts said.
Although the resulting inflationary pressures and uncertainties have heightened risks, they remain manageable for now, with the domestic economy continuing to display resilience.
However, inflation continues to face upside risks from elevated global oil prices, a weak monsoon and lower water reservoir levels. “We expect MPC members will remain watchful of the progress of the monsoon and its impact on food inflation. We expect RBI to remain on hold for now and also keep the stance unchanged,” said Sonal Badhan, Economist, Bank of Baroda (BoB).
“Present growth-inflation dynamics is pointing towards risks to growth with a manageable inflation trajectory in the immediate future. This, coupled with elevated global uncertainties, may result in MPC not considering the “rate hike” option in a hurry during the forthcoming MPC meeting in August,” said Mandar Pitale, Head, Financial Markets, SBM Bank (India).
According to a Care Edge report, the central bank is expected to keep rates unchanged in August, with any potential rate hikes later in FY27 contingent on a material rise in inflation or renewed geopolitical risks, although the base-case scenario remains for no further hikes this fiscal year.
June 5 review: Repo rate unchanged at 5.25%; growth outlook lowered
On June 5, MPC had kept the interest rates unchanged at 5.25% despite mounting inflationary pressures from rising crude oil prices and supply-side pressures triggered by the West Asia conflict.
However, the RBI policy panel re-reassessed both its growth and inflation projections, with risks emanating from elevated oil prices, uncertainty in global trade, adverse weather conditions and geopolitical tensions clouding the economic outlook.
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It lowered the growth projection from 6.9% to 6.6% and hiked the inflation forecast from 4.6% to 5.1% in the June policy review.
Pitale said MPC is expected to deliver cautionary guidance with global oil prices and monsoon remaining key monitorable for future policy actions. Oil prices moving up in the $90 to $100 range per barrel for the foreseeable future due to sustained tension will once again bring forward a strong case for generalised increase in price pressures ultimately percolating to the demand side. This will create a strong skewness towards rate hikes in the second half of FY26-27.
Retail inflation breaches target
“However, this is also the right opportunity for the central bank to signal the markets that RBI may hike rates in future, by taking a cautious tone. We expect at least one rate hike in H2FY27 depending on the inflation trajectory,” Badhan said.
Retail inflation breached the RBI’s target for the first time in 17 months in June, setting the stage for interest rate hikes in an economy at risk from a prolonged West Asia conflict. Retail inflation rose to 4.38% year-on-year in June crossing the central bank’s 4% target.
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Between June 17 (when the peace deal was signed) and now, oil prices have risen by 11% as of July 31, 2026. US 10-year treasury yield has risen by 16 basis points. “The rupee has depreciated by 0.8% in this period and is currently trading at 95.34. The impact on currency and equity markets can be explained by foreign fund outflows, which exacerbate during times of stress,” BoB said.
