The Reserve Bank of India (RBI) is expected to leave interest rates unchanged at its monetary policy review on 5 August, shifting the focus from what it does to what it says.
A Mint poll of 10 economists found all respondents expect the RBI to keep the repo rate unchanged at 5.25% and retain its "neutral" policy stance, preserving flexibility as it navigates geopolitical risks, volatile crude oil prices, an uneven monsoon, a weakening rupee and imported inflation.
The Monetary Policy Committee (MPC) is scheduled to announce its decision after its 3-5 August meeting.
The repo, or repurchase, rate is the rate at which the RBI lends short-term funds to commercial banks, typically against government securities as collateral.
The consensus reflects a domestic economy that has held up better than expected, but economists expect policymakers to wait for greater clarity on geopolitical developments, crude oil prices and the second half of the monsoon before signalling any shift in direction.
“There is still two months to go for the monsoon season…I think it is going to be a wait and watch policy,” said Sakshi Gupta, principal economist at HDFC Bank.
Markets will instead focus on the RBI's assessment of inflation, growth, the rupee and the conditions that could trigger future policy moves.
Growth stronger, inflation sticky
The poll showed a median expectation that the RBI will leave its FY27 inflation forecast unchanged at 5.1%, with eight of the 10 economists expecting no revision.
Headline inflation accelerated to an 18-month high of 4.4% in June, rising 50 basis points from the previous month as food inflation surprised on the upside, while core inflation remained modestly below expectations.
The median expectation is also for the RBI to retain its FY27 GDP growth forecast of 6.6%.
Still, some economists believe first-quarter activity has been stronger than the central bank anticipated.
HDFC Bank, ICICI Bank, and IDFC First Bank said high-frequency indicators point to firmer growth in the June quarter. However, only HDFC Bank and IDFC First Bank expect the RBI to upgrade its growth forecast, while the rest see no change.
The RBI's July bulletin said high-frequency indicators show industrial activity remained resilient despite West Asia tensions. Manufacturing and electricity output strengthened in May, the manufacturing PMI stayed in expansionary territory in June, and automobile production grew strongly on lower GST rates.
“There is an upward bias to their 6.6% forecast. Quarter one number can come in higher than what they are projecting,” Gupta said.
Words over action
Several economists described the August review as a policy “non-event” in terms of immediate action, but said the RBI's communication is likely to strike a cautious, if mildly hawkish, tone.
“The policy could be a non event on new actions after the power packed June policy. A wait and watch mode will be adopted led by neutral tone with caution on global uncertainty and El Nino, while showing optimism around current growth momentum and healthy FCNR related flows,” Madhavi Arora, chief economist at Emkay Global Financial Services, said.
Upasna Bharadwaj, chief economist at Kotak Mahindra Bank, expects the policy to be guidance-specific and “a little hawkish”, with the RBI laying the groundwork for future action if necessary.
Bank of Baroda expects policymakers to remain cautious because of monsoon uncertainty. Icra's chief economist Aditi Nayar said the RBI is likely to maintain the status quo for now but could consider raising rates later in FY27 if inflation pressures become more broad-based.
CRISIL also expects the RBI to remain data-dependent, warning that persistent input cost pressures from higher crude oil prices could warrant a 25-basis-point rate hike later this fiscal year if the West Asia conflict drags on.
Four of the 10 economists surveyed by Mint expect the RBI to raise rates later in FY27, most likely in October or December. Two—IDFC First Bank and Emkay Global Financial Services—expect no hike this fiscal year, while the remaining four did not offer a view on the timing of future policy action.
Not everyone expects an uneventful meeting.
“I think this will be actually a very interesting policy,” said Sameer Narang, chief economist at ICICI Bank.
Unlike previous meetings, inflation is now tracking below the RBI's own projections while growth has strengthened, giving policymakers greater room to shape their message, Narang said. “I think they have degrees of freedom this time around on what they want to say and how they want to put it.”
He said markets should pay attention to how the RBI frames the inflation outlook, especially whether policymakers continue to emphasise core inflation or shift greater focus to headline inflation.
Beyond the policy statement, economists said investors will also watch for the RBI's latest assessment of foreign currency non-resident (bank), or FCNR(B), deposits and any commentary on the rupee.
On 1 August, the RBI said the measures had attracted about $36.73 billion through FCNR(B) deposits, alongside $2.57 billion through overseas foreign currency borrowings (OFCBs) and $1.52 billion through external commercial borrowings (ECBs).
The special FCNR(B) deposit scheme and related measures were announced on 5 June to boost foreign currency inflows and support the rupee. The window is open until 30 September and is expected to attract $45-55 billion of inflows.