Societe Generale analysts Kunal Kundu and Galvin Chia note that the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) kept the repo rate at 5.25% with a neutral stance, while cutting FY27 Gross Domestic Product (GDP) growth to 6.6% and raising FY27 Consumer Price Index (CPI) inflation to 5.1%. They stress that the macro backdrop has worsened due to external shocks, but policy rates are not yet being used as the primary defence.

RBI holds rates as risks rise

"The RBI MPC unanimously voted to keep the repo rate unchanged at 5.25% and retained the neutral stance, even as it cut FY27 GDP growth to 6.6% from 6.9% and raised FY27 CPI inflation to 5.1% from 4.6%."

"The policy statement highlighted the prolonged West Asia conflict, elevated crude prices, supply-chain disruptions, tighter global financial conditions, and weather/monsoon risks as key threats to both growth and inflation, suggesting that the macro backdrop has worsened materially since April."

"While warning about upside inflation risks and possible second-round effects, the RBI opted to wait for greater clarity before tightening, implying that it is trying to avoid an immediate growth shock while preserving room for action later in FY27."

"Alongside the pause, the RBI and the government unveiled measures to attract foreign capital, support the rupee, and ease external financing pressures, including steps to encourage overseas inflows into government securities, indicating a preference for targeted BoP support."

"The combination of a policy pause, a neutral stance, downgraded growth, higher inflation projections, and capital-inflow measures suggests that the RBI is preserving optionality, protecting near-term growth, and tolerating somewhat higher inflation for now, while keeping the door open to tightening later in FY27 if inflation proves more persistent."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)