RBI's MPC minutes show a consensus for a 'wait-and-watch' approach, keeping the repo rate at 5.25%. Members cited uncertainties like the West Asia conflict and supply-driven inflation as reasons to avoid a pre-emptive rate change.
Most members of the Reserve Bank of India's Monetary Policy Committee (MPC) saw little justification for a pre-emptive change in interest rates at the June policy review, arguing that heightened uncertainty around the West Asia conflict, supply chain disruptions and monsoon risks warranted a cautious "wait-and-watch" approach, according to the minutes of the MPC meeting released on Friday.
The six-member committee unanimously voted to keep the repo rate unchanged at 5.25 per cent and retain the neutral policy stance, with several members stressing that the inflation shock remains largely supply-driven and its persistence is still uncertain.
Members Voice Caution on Pre-emptive Action
In the minutes, external member Dr Nagesh Kumar said that "prudence requires waiting for greater clarity to emerge on the impact before any monetary policy response."
"One needs to keep an eye on the evolving geopolitical situation in West Asia and its implications for the Indian macroeconomic outlook, especially the growth-inflation dynamics," he said while backing the status quo.
External member Saugata Bhattacharya said the economy faces "multiple overlapping geo-economic shocks" and argued that "risk management is now the most sensible approach to monetary policy responses." He added that despite concerns over inflation, "I do not see material signals of economic overheating" and that maintaining the current repo rate was "likely to have the lowest economic cost."
Executive Director Indranil Bhattacharyya also argued against a pre-emptive response to rising prices, noting that while wholesale inflation has surged, policymakers need to assess how much of that feeds into consumer inflation. "While demand-pull inflation may call for pre-emptive action to effectively anchor inflation expectations, cost-push inflation induced by supply shocks warrants greater caution - gradualism - in policy making," he said. "It is prudent to wait for greater clarity to emerge from the data before deciding on any policy action."
Deputy Governor Poonam Gupta similarly backed a pause, saying she did not see a case for tightening policy when growth is expected to slow and inflation has not yet become entrenched. "It would be prudent to adopt a wait and watch approach rather than make an early or preemptive policy pivot," she said.
Revised Economic Projections
The MPC's June projections showed GDP growth for 2026-27 slowing to 6.6 per cent from 6.9 per cent projected earlier, while inflation was revised upwards to 5.1 per cent amid higher oil prices and monsoon-related risks. Against this backdrop, committee members broadly concluded that waiting for more clarity on the duration of the West Asia conflict and its economic impact was preferable to acting prematurely.
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