RBI MPC Minutes: El Niño, crude volatility, geopolitical risks pose inflation risks

Minutes of the RBI Monetary Policy Committee (MPC) meeting released on Wednesday stated that inflation risks remain concentrated in food and fuel, with limited evidence so far of broader price pressures. However, El Niño conditions, volatile crude oil prices and geopolitical developments could alter the inflation outlook. 

The central bank said greater clarity is needed on the trajectory and composition of inflation before any policy action is considered. Future rate decisions will also depend on the evolving balance between growth and inflation, as well as the normalisation of underlying inflation.

The MPC had unanimously decided to keep the policy repo rate unchanged at 5.25%, retaining its neutral stance amid elevated global uncertainty, rising inflation risks and concerns over the monsoon. The decision leaves the Standing Deposit Facility (SDF) rate at 5.00% while the Marginal Standing Facility (MSF) rate, and Bank Rate remains at 5.50%. 

Global risks remain elevated 

The RBI said the global economic outlook in 2026 has been marked by sharp market swings, persistent inflation concerns, and shifting expectations around monetary policy. 

The resumption of conflict in West Asia in July has increased geopolitical risks and contributed to volatility in global oil prices. Persistent inflation has prompted some central banks to raise interest rates, while others have remained cautious. 

The US dollar has strengthened amid elevated yields, a hawkish Federal Reserve stance and a relatively resilient US economy, supported in part by productivity gains from artificial intelligence. Global equity markets have also remained volatile as investors reassessed their exposure to AI-related stocks. 

Domestic demand remains resilient 

Despite global headwinds, the Indian economy has continued to show resilience. High-frequency indicators point to steady domestic demand in the first quarter of 2026-27, with private consumption remaining robust. 

Investment activity has also held up, supported by construction, capital goods and bank credit. External demand has remained supportive, aided by healthy growth in services exports and a rebound in merchandise exports. However, the RBI cautioned that global turbulence, elevated energy prices, and supply-chain pressures could weigh on domestic economic activity. 

An uneven and deficient southwest monsoon amid El Niño conditions poses risks to agriculture and rural demand. The central bank said government measures focused on crop diversification, climate-resilient crops, and water conservation could help mitigate some of these risks. 

At the same time, sustained services activity, GST rationalisation, stable employment, strong capacity utilisation, robust credit growth, and continued infrastructure spending are expected to support consumption and investment. 

GDP growth projected at 6.7% 

The RBI has projected real GDP growth at 6.7% for 2026-27, with growth estimated at 7.0% in Q1, 6.4% in Q2, 6.5% in Q3 and 6.8% in Q4. Growth for Q1 2027-28 is projected at 7.3%, with risks assessed as evenly balanced. 

The central bank said resilient domestic demand, continued expansion in manufacturing and services, and robust exports would remain the key drivers of economic growth. 

Inflation likely to rise further 

CPI inflation rose to 4.4% in June 2026, after remaining below the RBI’s target for 16 consecutive months. The increase was driven mainly by higher food and fuel prices. 

Food inflation rose across several categories, while fuel inflation increased following retail price revisions after a sharp rise in international energy prices. Despite higher input costs, core inflation remained at 3.9% in May and June. Excluding precious metals, core inflation was lower at 2.3%-2.5%, indicating that underlying demand pressures remain contained. 

The RBI has projected CPI inflation at 5.0% for 2026-27, with inflation expected at 4.7% in Q2, 5.9% in Q3 and 5.5% in Q4. Inflation is expected to peak in the third quarter before moderating thereafter. Core inflation is projected at 4.3% for the year. 

The 62nd MPC meeting was held from August 3 to 5, 2026, under RBI Governor Sanjay Malhotra, with all six members attending. The committee reiterated its commitment to closely monitoring economic developments and aligning inflation with its target.