Key facts
- RBI held the repo rate steady at 5.25%.
- The Monetary Policy Committee maintained a neutral stance.
- The committee cited geopolitical and supply chain risks.
- Upgraded inflation forecasts suggest potential rate hikes from August.
- Future policy decisions will be data-dependent.
The Reserve Bank of India's Monetary Policy Committee (MPC) has decided to keep the benchmark repo rate unchanged at 5.25%, maintaining its neutral stance. The committee acknowledged considerable risks to both the inflation and growth outlooks, primarily stemming from the ongoing conflict in West Asia and persistent supply chain disruptions. The MPC emphasized that its future policy decisions will be data-dependent, with a continued focus on monitoring evolving economic indicators and supply-side pressures. Despite holding the repo rate steady, the RBI's significantly upgraded inflation forecasts signal a strong likelihood of rate hikes from August. Anubhuti Sahay of Standard Chartered highlights that elevated inflation projections, coupled with upside risks from oil prices and El Niño, suggest a deliberate sequencing of policy tools, with further rate increases firmly in view. Additionally, BofA has reduced India's GDP forecast to 6.5% from 7%, citing the impact of the West Asia conflict on potential economic repercussions from geopolitical tensions.