India’s rate-setting panel has expressed growing concern over the possibility of inflationary pressures spreading across the economy, even as policymakers opted to leave interest rates unchanged amid an uncertain global environment shaped by geopolitical tensions in West Asia involving the US and Iran. The minutes of the Reserve Bank of India’s (RBI) June monetary policy meeting, released on Friday, revealed that several members of the Monetary Policy Committee (MPC) favoured maintaining vigilance over inflation risks while keeping a close watch on evolving growth dynamics.
The committee unanimously voted to retain the repo rate at 5.25 per cent and continue with a neutral policy stance. Additionally, RBI Governor Sanjay Malhotra stressed the importance of monitoring price pressures in the months ahead, particularly as uncertainty clouds the economic outlook.
“We should remain watchful and wary about the generalisation of inflation in the coming months,” Sanjay Malhotra, Governor, Reserve Bank of India (RBI), said in the minutes of the policy meeting released on Friday.
Malhotra noted that projections for both inflation and economic growth are subject to significant uncertainty, with factors such as the duration of the West Asia conflict and potential supply chain disruptions posing risks. While he acknowledged that monetary policy is primarily guided by future inflation expectations, he underlined the importance of current inflation trends.
“Even though it is the inflation outlook which is more relevant for monetary policy, current inflation merits attention, especially when the outlook is clouded,” he said, adding that core inflation remained contained, suggesting that underlying inflationary pressures were subdued.
Policymakers Favour Patience Before Any Shift
Deputy Governor Poonam Gupta argued that policymakers should wait for greater clarity on global developments and weather-related factors before considering any reversal in the current policy cycle. She maintained that there is little justification for tighter monetary policy at present, particularly when growth is expected to slow, and inflation has not yet become deeply embedded in the economy.
“If anything, it could make the economic pain of the ongoing supply shock sharper,” she said.
Internal MPC member Indranil Bhattacharyya also stressed the challenges of forecasting inflation in the current environment.
“Inflation projections are subject to several uncertainties in the present context. While WPI inflation has spiked, one needs to wait for its pass-through to CPI inflation,” Bhattacharyya said.
Economic Growth Support Remains A Key Consideration
External member Ram Singh said upcoming economic data would provide a clearer picture of whether rising input costs are feeding into consumer inflation. “There is no risk of inflation expectations getting unanchored… My long-term policy preference remains growth-supportive,” Singh, whose views are considered among the most dovish in the committee, said.
He added that a combination of stable food prices, softer crude oil prices and a less aggressive stance from the US Federal Reserve could create room for the central bank to continue supporting growth.
“If the inflation-related risks resolve favourably — food inflation remaining stable, global oil prices stabilising below $80 per barrel, and the Federal Reserve avoiding hawkish decisions — in my view, the MPC will have the room to continue to be growth-supportive,” Singh added.
External member Nagesh Kumar echoed the need for caution, arguing that policymakers should wait for greater certainty before responding to current economic developments. “Even with the lower growth projections, the Indian economy will continue to remain the fastest-growing major economy,” Kumar said.
The RBI currently projects India’s real GDP growth at 6.6 per cent for FY27, lower than the previous year’s pace. However, the economy remains among the fastest-growing major economies globally.
Energy Prices And Monsoon Risks Add To Uncertainty
Another external member, Saugata Bhattacharya, flagged weather-related concerns, particularly the possibility of weak rainfall affecting agricultural production and food prices. “The chances of a policy mistake remain heightened given the two-way risks to the inflation-growth outlook,” Bhattacharya said.
He cautioned that policymakers must closely assess whether higher production costs eventually become embedded in consumer prices. “This will depend on the intensity and duration of the energy shock,” he said.
