The RBI's MPC is expected to keep the repo rate at 5.25% and maintain a 'neutral' stance. The decision is influenced by easing inflation, resilient economic growth, strong foreign inflows, and a comfortable external sector position.
The Reserve Bank of India's Monetary Policy Committee (MPC) is widely expected to keep the benchmark repo rate unchanged at 5.25 per cent in its policy announcement later on Wednesday, with analysts also anticipating the central bank to retain its 'neutral' policy stance amid easing inflation, resilient economic growth and comfortable external sector indicators.
The expected status quo is expected after key macroeconomic indicators have broadly evolved more favourably than the assumptions underlying the RBI's June monetary policy review. Retail inflation has remained below the central bank's projections, with average inflation for the first quarter of FY27 coming in at 3.9 per cent against the RBI's forecast of 4.2 per cent. Softer commodity prices have also provided support, with international crude oil prices trading in the range of USD 85-87 per barrel, significantly below the RBI's June assumption of USD 95 per barrel.
Resilient Economic Growth
Economic growth has also remained resilient. While the RBI projected GDP growth at 6.6 per cent for the current financial year, expectations have strengthened, with growth now seen closer to 7 per cent, reflecting sustained domestic demand and investment activity.
Strong Capital Inflows
The RBI's measures to attract foreign currency inflows have also yielded strong results. Special relaxations under the FCNR(B) deposit and External Commercial Borrowing (ECB) framework have mobilised about USD 40.82 billion so far, surpassing the USD 34 billion raised over three months during a similar exercise undertaken in 2013. The current window remains open until September 30, leaving further scope for additional inflows.
Foreign portfolio investment in government securities has also strengthened following the RBI's liberalised investment norms. As of May-June, total foreign portfolio holdings across government security routes stood at around Rs 3.75 lakh crore, or nearly USD 45 billion.
Robust Foreign Exchange Reserves
India's foreign exchange reserves have also remained resilient despite episodes of market volatility. Reserves stood at USD 682.32 billion at the end of May before declining to USD 676.23 billion by mid-July as the RBI intervened to manage rupee volatility amid geopolitical tensions and crude oil fluctuations.
The reserves subsequently recovered to a record USD 682.35 billion by July 24, supported by strong inflows mobilised through the FCNR(B) and overseas borrowing initiatives. The current reserve stock provides around 11 months of import cover and covers nearly 89 per cent of India's external debt, underscoring the country's strong external sector position.
Against this backdrop of lower-than-expected inflation, stronger growth, comfortable foreign exchange reserves and sustained capital inflows, it is expected that MPC will leave the repo rate unchanged at 5.25 per cent while maintaining the 'neutral' policy stance in the policy review to be announced later in the day. (ANI)
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