4 min readMumbaiUpdated: Aug 6, 2026 06:12 AM IST
Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday signalled that the central bank is in no hurry to alter its policy course as it weighs a more challenging growth-inflation mix.
“The outlook, however, is hazy because of the uncertainties regarding the south-west monsoon, El Niño, geopolitics and global trade policy. There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action,” he said while unveiling the monetary policy.
“Any such action (on the interest rate front) would also have to consider the need for recalibration of policy rates in line with the evolving growth-inflation dynamics, especially the normalisation of the underlying inflation from its benign levels seen hitherto,” Malhotra said. The RBI’s policy panel on Wednesday kept the policy repo rate unchanged at 5.25%.
The US Federal Reserve also kept the federal funds target range unchanged at 3.50-3.75% on July 29 amid growing concern about inflation.
He said growth, albeit resilient, is expected to be lower in 2026-27. The supply-side pressures caused by the West Asia conflict have eased somewhat since June 2026, leading to withdrawal of temporary measures undertaken by the government and normalisation of key input supplies. However, the reescalation of the conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty about supply chains, he said.
Renewed West Asia tensions rekindle energy, supply chain risks
“The MPC underscored that it will maintain a close vigil and remain resolute in its commitment to align inflation with the target,” Malhotra said. The supply-side pressures caused by the West Asia conflict have eased somewhat since June 2026, leading to withdrawal of temporary measures undertaken by the government and normalisation of key input supplies, he said.
However, the reescalation of the conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty about supply chains. “Amidst persistent global uncertainty, domestic economic activity has exhibited resilience as reflected by the high frequency indicators available for Q1:2026-27,” he said.
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Malhotra said global oil prices have remained highly volatile with sharp two-way movements triggered by geopolitical developments, blurring the near-term outlook.19 Although generalised inflation pressures continue to remain modest so far, the risks of second-round impact of higher food, fuel and other input prices translating to broad-based inflation persist.
After considering all factors, CPI inflation for 2026-27 is projected to be 5.0% with Q2 at 4.7%, Q3 at 5.9%, and Q4 at 5.5%. Inflation for the first quarter of 2027-28 is projected at 5.3% with risks being evenly balanced. Core inflation is projected at 4.3% for 2026-27. Core inflation excluding precious metals is projected to be lower, though it is likely to align with core inflation from Q4.
Growth projection lowered to 6.7% for FY27
The RBI lowered its real GDP growth projection for 2026-27 to 6.7% while emphasising that the recent uptick in inflation is largely being driven by food and fuel supply shocks rather than broad-based demand pressures. Stressing that core inflation remains benign, the governor said the central bank would closely monitor whether these supply-side shocks spill over into underlying inflation before taking any policy action.
“Even though headline inflation is projected to increase, it is primarily on account of supply side pressures caused by food and fuel; it is not getting broad-based; core inflation remains moderate and is expected to decline after peaking in Q3. Growth, albeit resilient, is expected to be lower in 2026-27,” Malhotra said.
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On the external front, he said, “going forward, moderation in global trade growth, surge in energy prices and persistent trade policy uncertainties pose upside risks to India’s current account deficit in 2026-27.”
“As for the exchange rate, we will continue with our policy of it being determined by market forces, while curbing excessive volatility, checking speculative behaviour and preventing disorderly movements to ensure that it is not out of sync with fundamentals or disruptive of economic activity,” he said.
