New Delhi: The Reserve Bank of India’s Monetary Policy Committee decided on Wednesday to maintain the benchmark repo rate at 5.25 percent and preserve its neutral stance. Officials cited the need for clearer data on inflation trends given uncertainties over the southwest monsoon, El Niño effects, geopolitical tensions and global trade shifts.
RBI Governor Sanjay Malhotra stated that the Standing Deposit Facility rate stays at 5.0 percent, while the Marginal Standing Facility rate and bank rate remain at 5.5 percent after the three-day meeting.
Malhotra noted that headline inflation is expected to rise mainly from supply-side pressures in food and fuel, though core inflation stays moderate and may ease after peaking in the third quarter. More clarity on the inflation path and its makeup is required before any policy moves.
The central bank now forecasts Consumer Price Index inflation at 5.0 percent for the fiscal year, down 10 basis points from the prior estimate. Quarterly figures are 5.3 percent in Q1, 4.7 percent in Q2, 5.9 percent in Q3 and 5.5 percent in Q4. Core inflation is projected at 4.3 percent for the year.
Core inflation excluding precious metals is seen running below overall core levels but converging by year-end. The June inflation rise stemmed mainly from higher food and fuel prices. Core inflation excluding food and fuel held steady at 3.9 percent in May and June.
El Niño risks to rainfall timing and spread remain significant, while global oil prices have fluctuated sharply due to geopolitical events, complicating the near-term outlook. Although broad inflation pressures are limited, second-round effects from elevated food, fuel and input costs could spread further.
On liquidity, the usual seasonal return of currency during the monsoon, drawdown of government balances and measures to draw capital inflows should support banking system liquidity soon. Short-term money market rates, including those on commercial papers and certificates of deposit, eased in July.
The agriculture outlook faces challenges from uneven southwest monsoon rainfall under El Niño conditions. Reservoir levels are near normal, and government steps such as crop diversification, short-duration resilient varieties and water conservation are expected to limit damage from weak rains.
