The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) voted unanimously on Wednesday (August 5, 2026) to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25%, after a detailed assessment of the evolving macroeconomic and financial developments and the outlook.
Consequently, the standing deposit facility (SDF) rate remains at 5%, and the marginal standing facility (MSF) rate and the bank rate remain at 5.50%.
The MPC also decided to continue with the neutral stance.
RBI Governor Sanjay Malhotra, in his monetary policy statement, said the Indian economy has remained resilient amidst persisting global headwinds.
“High-frequency indicators available so far point towards steady domestic demand in Q1: 2026-27. Private consumption remained robust. Investment continues to be resilient, as suggested by various indicators related to construction, capital goods and bank credit,” he said.
“External demand also sustained, as healthy expansion in services exports was complemented by a rebound in merchandise exports,” he stated.
Looking ahead, he said, the turbulent global economic environment would have some bearing on domestic economic activity.
“Energy prices and supply chain pressures remain elevated and uncertain. The adverse impact is being contained with various supply-side measures. Even though the situation is still evolving, a deficient and uneven south-west monsoon amidst El Niño conditions poses some risks to the agriculture sector’s outlook and rural demand,” he emphasised.
Taking various factors into consideration, real GDP growth for 2026-27 is projected at 6.7% which is 10 bps higher than the earlier projection, with Q1 at 7.0%; Q2 at 6.4%; Q3 at 6.5%; and Q4 at 6.8%. Real GDP growth for Q1:2027-28 is projected at 7.3%. The risks are evenly balanced.
Inflation
Mr. Malhotra said that while CPI inflation increased to 4.4% in June 2026 after remaining below the target for 16 consecutive months, it turned out to be lower by 30 basis points (bps) than what was earlier projected for Q1:2026-27.
“The increase in June was primarily due to higher food and fuel inflation. The increase in food inflation was broad-based, with most constituents witnessing price pressures during May-June. Fuel inflation also rose, driven by revision in retail prices, following the sharp spike in international energy prices,” the Governor said.
Despite the pressure from higher input costs, core (CPI excluding food and fuel) inflation remained unchanged at 3.9 per cent during May-June. Excluding precious metals, core inflation remained even lower at 2.3-2.5% during this period, he stated.
“Going forward, El Niño’s impact on temporal and spatial rainfall distribution continues to remain a risk, although proactive supply management and adequate stocks of foodgrains could provide buffers,” he pointed out.
He said the generalised inflation pressures continue to remain modest so far but the risks of higher food, fuel and other input prices translate into a broad-based increase in inflation.
Considering various factors, CPI inflation for 2026-27 is projected to be 5.0% which is 10 bps lower than the earlier projection with Q2 at 4.7%; Q3 at 5.9%; and Q4 at 5.5%.
Inflation for Q1 2027-28 is projected at 5.3%, with risks being evenly balanced.
Core inflation is projected at 4.3% for 2026-27. Core inflation, excluding precious metals, is expected to be lower in the near term, suggesting that demand pressures remain contained, he stated.
The higher inflation is mostly on account of fuel and food, with little signs of generalisation of price pressures so far, the MPC observed, he stated.
“Core inflation excluding precious metals continues to be benign. As projected earlier, headline inflation is expected to rise further in the near term and peak in Q3:2026-27, primarily due to food and fuel, before moderating thereafter,” he said.
The Governor said “even though headline inflation is projected to increase, it is primarily on account of supply side pressures caused by food and fuel; it is not getting broad-based; core inflation remains moderate and is expected to decline after peaking in Q3.”
“Growth, albeit resilient, is expected to be lower in 2026-27,” he stated.
“The outlook, however, is hazy because of the uncertainties regarding the southwest monsoon, El Niño, geopolitics and global trade policy,” he pointed out.
“There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action,” he concluded.
Published – August 05, 2026 10:14 am IST
