RBI Monetary Policy: Sanjay Malhotra-led MPC raises FY27 growth projections to 6.7% despite Middle East crisis

RBI MPC Meeting 2026: The Reserve Bank of India (RBI), in its August policy meeting outcome on 5 August, Wednesday, revised its FY27 GDP growth forecast upward to 6.7% from 6.6% amid the Middle East crisis, reflecting confidence in the domestic growth outlook.

The RBI Governor Sanjay Malhotra-led Monetary Policy Committee (MPC) also raised its Q1 FY27 GDP growth projection to 7% from 6.6% and increased the Q2 forecast to 6.4% from 6.3%. The central bank left its Q3 projection unchanged at 6.5% and retained the Q4 estimate at 6.8%, indicating that it expects growth momentum to remain resilient through the rest of the financial year.

"Growth, although resilient, is expected to be lower in this financial year. The outlook, however, is hazy because of the uncertainties regarding South's global trade policy. There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action," RBI Governor Malhotra said.

Policy Decision

Meanwhile, RBI kept the policy repo rate unchanged at 5.25% and retained its 'neutral' policy stance. The decision to maintain the benchmark lending rate was unanimous, with all MPC members voting in favour of the status quo.

Alongside the repo rate, the central bank also left the Standing Deposit Facility (SDF) rate unchanged at 5%, while retaining the Marginal Standing Facility (MSF) rate and the bank rate at 5.5%.

Explaining the rationale behind the decision, Governor Sanjay Malhotra said the economic outlook continues to face significant uncertainty due to factors such as the Southwest monsoon, El Niño conditions, geopolitical tensions and global trade policy developments.

He said the RBI has adopted a wait-and-watch approach, noting that "there is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action."

The Monetary Policy Committee also indicated that any future policy decisions would be guided by evolving growth and inflation dynamics. It said any recalibration of policy rates would depend on how inflation trends develop, particularly the normalisation of underlying inflation from the relatively benign levels seen so far.

Inflation Forecast

The RBI lowered its Consumer Price Index (CPI) inflation forecast for FY27 to 5%, trimming it by 10 basis points from its earlier projection of 5.1%.

On a quarterly basis, the central bank revised its Q1 FY27 inflation estimate down to 4.1% from 4.2%, while the Q2 forecast was cut to 4.7% from 5.1%. The inflation projection for Q3 was retained at 5.9%, whereas the estimate for Q4 was marginally raised to 5.5% from 5.4%.

Malhotra said "The impact of El Nino on the temporal and spatial distribution of rainfall remains a major risk. Global oil prices have also remained highly volatile, with sharp two-way movements triggered by geopolitical developments, blurring the near-term inflation outlook.

While generalised inflation pressures remain modest so far, the risk of second-round effects from higher food, fuel and other input costs translating into broader-based inflation persists."

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