Not surprisingly, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has decided to opt for status quo on rates, even as it clearly underlined the risks to inflation going forward. The MPC view keeping the benchmark repo rate – the rate at which the central bank lends money to banks – unchanged signals the RBI’s desire to wait a wee bit longer before acting on rates, in view of the longer term risks to inflation.

The sixth bi-monthly policy statement 2017-18 resolution of the MPC is, however, hawkish enough to signal a firm ending of the regime of benign interest rates. The signals from the policy resolution, despite the status quo on rates, is unambiguous. There are several upside risks to inflation, the MPC says in its outlook. For one, the staggered impact of the implementation of HRA by the various state governments will push up headline inflation in 2018-19 and “potentially induce second-round effects”, the resolution adds. The MPC has voted 5-1 in favour of status quo, with one member, Michael Patra, voting in favour of a 25 basis point rate hike.

The two other critical factors RBI has kept in mind are the effects global growth can have on crude oil prices, which have already begun exerting pressure on the plans of the central bank and the finance ministry as far as interest rates are concerned. The expectation is that increased growth prospects will further push up oil prices. The Union Budget 2018 proposal of increasing minimum support prices (MSP) to 1.5 times the input costs has also weighed on the minds of the MPC members, since the inflationary impact of such a move can hardly be underscored.

In a recent interview to Fortune India, Pawan Goenka, managing director of auto and farm equipment major Mahindra & Mahindra had expressed some concern about whether the move on MSP, while being a step in the right direction as far as the farm sector is concerned, could be potentially inflationary unless farm input costs are kept under control, and steps taken to incentivize such cost control.

The move to increase customs duty on a range of items, the slippage on the fiscal and, in the MPC’s words, “the confluence of domestic fiscal developments and the normalization of monetary policy by major advanced countries” could prove to be further risks to inflation in the future. But while the hawkish tone of the policy resolution does enough to warn about the risks, it also reiterates its commitment to keep headline inflation at 4% on a “durable basis”. But the part to be read carefully in the resolution is on the “need for vigilance around the evolving inflation scenario in the coming months.” Simply put, while the RBI believes the Budget has attempted to provide a fillip to growth, and pushed the farm and infrastructure sectors, from RBI’s side there will be no wavering from its stance that the primary aim is to bring inflationary expectations down to manageable levels.

The current inflationary situation is far from what RBI intends it to be. The resolution has pointed out that headline inflation averaged 4.6% in the third quarter of FY18, driven by an unusual pickup in prices of food. With the rise in domestic pump prices of fuel, the central bank estimates inflation to end up at around 5.1% in the fourth quarter, including the impact of HRA. Going forward, the estimate for inflation in the next fiscal will be shaped by the upturn in oil prices and those of non-oil industrial raw material which have started moving up. Taking all these elements into account, the MPC estimates CPI inflation to end up between 5.1-5.6% in the first half of the fiscal, and 4.5-4.6% in the second half, with “risks tilted to the upside”. GVA growth, on the other hand, is projected at 7.2% overall; 7.3-7.4% in the first half and 7.1-7.2% in the second, with risks evenly balanced.

Coming just days after Finance Minister Arun Jaitley unveiled a Budget which decided to loosen the fiscal consolidation resolve just a tad for now (with a promise to get back to it at the earliest), the MPC’s decision to hold rates while flagging off the clear and present danger on inflation is not difficult to understand. The decision, the MPC says, is consistent with its neutral policy stance, and its resolve of achieving the medium-term CPI inflation target of 4% (within a 2 percentage point band on either side).

While Urjit Patel would, perhaps, have held back his fire just for now – something which may please the finance minister a little – the reality of a rate hike is something the MPC resolution has indicated towards in no uncertain terms. India Inc – and indeed the finance ministry – will need to factor this in as they head to the drawing board.