RBI Guv watchful of inflation trajectory amid May fuel price revision

RBI Governor Sanjay Malhotra said the MPC must be watchful of inflation due to fuel price revisions and monsoon risks. The committee maintained the status quo, keeping the repo rate unchanged at 5.25% with a 'wait and watch' approach.

Inflation Watch and Key Risks

The RBI Governor Sanjay Malhotra said that the Monetary Policy Committee (MPC) will have to be watchful of the inflation trajectory going forward, especially in the light of the revision of fuel prices in May. "We need to be watchful of the inflation trajectory. Going forward, revision in retail prices of petrol and diesel in May would lead to higher fuel inflation in the coming months," the Governor said in the minutes of the Monetary Policy Committee meeting.

The Governor said that even though the near-term outlook for food prices remains favourable, the risks from a poor monsoon due to El Nino have increased.

MPC Maintains Status Quo

The Monetary Policy Committee, in its policy announcement on June 5, maintained the status quo and kept the repo rate unchanged at 5.25 per cent. The decision to keep the rates unchanged was unanimous.

The Governor said that he would prefer to go with a "wait and watch" approach and accordingly voted for a status quo on the policy rate while retaining the neutral stance. The RBI Governor's approach on the policy front is guided by the evolving geopolitical scenario in West Asia and the impact of a poor monsoon.

Revised Economic Forecasts

The MPC, in its inflation projections, raised the forecast for 2026-27 to 5.1 per cent with a peak of 5.9 per cent in Q3. The economic growth for the current fiscal year was trimmed to 6.6 per cent from 6.9 per cent in April.

There is uncertainty in the assumptions made for the inflation and growth projections, the Governor underlined. The extent of the war in West Asia and the intensity and geographical spread of monsoons could determine the future course of inflation and growth.

Core Inflation Analysis

The Governor underscored the fact that even though headline inflation for 2026-27 is projected to be on the higher side of the inflation tolerance band, the core inflation is projected at 4.7 per cent for the fiscal year, and if metals are excluded, the core inflation falls further.

"Most of the increase in the projected headline inflation between April policy and now is driven by food and fuel, which is supply driven. It may be a change in price level, which may or may not get generalised," the Governor observed. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)