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RBI may hold rates in 2026 despite inflation risks flagged by MPC members

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RBI may hold rates in 2026 despite inflation risks flagged by MPC members

RBI may hold rates in 2026 despite inflation risks flagged by MPC members

The August Monetary Policy Committee minutes are materially less neutral than the policy statement, with multiple members concerned about the imminent generalisation of inflation and making a case for policy rate calibration.

MPC members flagged concerns over the potential generalisation of inflation, despite limited broadening into core and core-core CPI. More than 70% of CPI items recorded inflation below 4% in July, while 74% of the rise in headline inflation since February was driven by supply-side factors and commodities. CPI inflation is expected to average 4.8% in FY27, below the MPC’s 5% forecast, with downside risks to its 4.3% core inflation forecast. The December rate-hike risk is rising, but the base case remains for the MPC to hold rates through 2026 and begin hikes from February 2027.

The Reserve Bank of India may keep policy rates unchanged through the remainder of 2026 as the broadening of inflation from headline to core and core-core CPI remains muted and selective. The August Monetary Policy Committee minutes are materially less neutral than the policy statement, with multiple members concerned about the imminent generalisation of inflation and making a case for policy rate calibration. However, the underlying inflation dynamics so far remain relatively contained. 6%. Around 74% of the increase in headline inflation during this period was driven by supply-side factors and commodity prices, including food, fuel and jewellery. More than 70% of the items in the CPI basket recorded inflation below 4% in July, according to Barclays India.


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