He Reserve Bank of India (RBI) has unanimously decided keep interest rates unchanged while evaluating the impact of the Middle East war, although it has updated its economic forecasts with a downward revision of growth and upward revision of inflation. It represents the organization’s third consecutive pause after the rate cut carried out in December. «Following a detailed assessment of macroeconomic and financial developments and the outlook, the Monetary Policy Committee voted unanimously to keep the benchmark repo rate under the liquidity adjustment mechanism unchanged at 5.25%. Consequently, the permanent deposit facility rate remains at 5% and the marginal permanent facility rate and the bank rate remain at 5.5%,» they explain in a statement. Additionally, the Reserve Bank of India has also voted to maintain a neutral stance on monetary policy, extending its wait-and-see approach. «While the risks of higher inflation have intensified, the Committee considered it prudent to wait for the situation to become clearer. Consequently, it voted in favor of keeping the monetary policy rate unchanged. At the same time, it will continue to rely on data and closely monitor the evolution of the situation, including supply pressures that feed into the general price level and inflation expectations. It also decided to maintain the neutral stance,» they add. According to the governor of the Indian organization, Sanjay Malhotra, «the Committee noted that the global environment has deteriorated since the last monetary policy meeting, with the conflict persisting amid a fragile truce» and «it was of the opinion that there are considerable risks to the baseline assessment of inflation and growth due to uncertainty over the duration and intensity of the conflict, the magnitude of its indirect effects and the pace of restoration of supply chains.» Regarding the outlook, he has indicated that «although the base projections indicate that general inflation will consolidate towards the upper limit of tolerance in the third quarter of 2026-27, the impact of the supply shock is expected to decrease from the fourth quarter.» «Underlying inflationary pressures remain moderate at this time. However, generalization of inflation through second-round effects on expectations and wages is a real possibility, warranting close monitoring,» it says. Also, «high energy prices, coupled with global supply constraints, are having a negative impact on economic activity. While domestic demand remains strong and activity in the manufacturing and services sectors continues to expand, there are emerging signs of moderation in some sectors, as suggested by high-frequency indicators.» Thus, the Reserve Bank of India projects Gross Domestic Product (GDP) growth of 6.6% for the period 2026-27, with growth of 6.6% in the first quarter, 6.3% in the second, 6.5% in the third and 6.8% in the fourth», highlighting that «prolonged disruptions in global supply chains, increased volatility in global financial markets and extreme weather events continue posing downside risks to domestic growth prospects.» It estimates inflation for 2026-27 to be 5.1%, with 4.2% in the first quarter, 5.1% in the second quarter, 5.9% in the third quarter and 5.4% in the fourth quarter. And it expects core inflation to be 4.7% for 2026-27. «Excluding precious metals, core inflation is projected to be lower, suggesting that demand pressures remain contained. These forecasts are subject to upside risks due to disruptions in the global supply chain and uncertainty over the spatial and temporal distribution of the monsoon. However, adequate grain stocks and satisfactory reservoir levels provide some reassurance,» he says.
