The Reserve Bank of India (RBI) on Friday raised its inflation projection for the current financial year and signaled that interest rate hikes may be on the horizon if price pressures persist. However, the central bank maintained the status quo on policy interest rates for the third consecutive meeting, keeping the repo rate unchanged at 6.5%.
Inflation Forecast Revised Upward
The RBI now expects retail inflation to average 5.2% in FY27, up from its earlier estimate of 4.8%. The upward revision was attributed to rising food and fuel prices, along with global supply chain disruptions. Governor Shaktikanta Das highlighted that the battle against inflation is not yet over and that the central bank remains vigilant.
Policy Stance Remains Accommodative
Despite the higher inflation forecast, the Monetary Policy Committee (MPC) voted 5-1 to keep the repo rate unchanged at 6.5%. The reverse repo rate also remains steady at 6.25%. Das emphasized that the MPC will continue to monitor inflation dynamics and is prepared to act if necessary. The stance was retained as 'withdrawal of accommodation,' signaling a gradual move toward neutral policy.
Market Reaction and Expert Views
Following the announcement, bond yields edged higher, while the stock market remained volatile. Analysts expect the RBI to begin rate hikes in the next quarter if inflation does not moderate. SBI Research noted that the central bank is likely to adopt a cautious approach, balancing growth and inflation.
The next MPC meeting is scheduled for August 2026, where further clarity on the rate trajectory is expected.
