RBI MPC: No scope for further easing, rate hike may emerge this year, says Poonam Gupta

Reserve Bank of India monetary policy committee (MPC) member and deputy governor Poonam Gupta said there is no scope for further monetary easing at the current juncture and that a rate hike could emerge during the year, as policymakers weigh rising food and fuel prices against resilient economic growth.

Gupta's comments came in the minutes of the MPC's August 3-5 meeting, at which all six members unanimously voted to keep the repo rate unchanged at 5.25% and retain the neutral stance. The minutes, however, show that the debate is increasingly shifting towards the risk of tighter policy if the recent rise in inflation becomes persistent or broad-based.

“The scope for any further easing does not seem to exist at the current juncture,” Gupta said. With headline inflation projected to peak at 5.9% in Q3 FY27, she added that “a case for a hike may emerge during the course of the year.”

Gupta, however, backed the status quo at the August meeting, saying policymakers should wait for greater clarity on weather conditions, supply-side inflation and global developments before recalibrating rates.

MPC keeps rate unchanged as inflation outlook turns challenging

The RBI has projected FY27 real GDP growth at 6.7%, with quarterly growth expected at 7% in Q1, 6.4% in Q2, 6.5% in Q3 and 6.8% in Q4. CPI inflation is projected at 5% for FY27, with Q3 inflation expected to peak at 5.9%.

The MPC said India's domestic economy remained resilient in Q1FY27, supported by private consumption, investment, bank credit and exports. But it also flagged elevated energy prices, supply-chain pressures, an uneven southwest monsoon and El Niño as risks to the outlook.

CPI inflation rose to 4.4% in June 2026, after remaining below the RBI's 4% target for 16 consecutive months. The increase was primarily driven by food and fuel inflation. Core CPI remained at 3.9%, while core inflation excluding precious metals was only 2.3-2.5% during May-June.

The RBI expects headline inflation to rise further before peaking in Q3 and moderating thereafter. It said the increase so far was largely supply-driven, with limited signs that inflation had become generalised.

Governor Malhotra says recalibration may be needed

RBI Governor Sanjay Malhotra struck a similar but more measured tone on the possibility of future policy action.

Malhotra said the Indian economy had performed “better than expected” in Q1FY27 despite the West Asia conflict, supply-chain disruptions and an erratic monsoon. He described the projected 6.7% FY27 growth as robust given the headwinds.

But he also highlighted the change in the inflation backdrop.

Average inflation last year was only 2%, when the policy rate was brought down to 5.25%. This year, headline inflation has averaged 3.93%, while core inflation is projected at 4.3% for FY27.

“This may suggest a recalibration of policy rate,” Malhotra said, while stressing that the RBI wanted greater certainty about the inflation trajectory before taking action.

He said a monetary response to a supply shock would be warranted if there were signs of inflation becoming generalised, inflation expectations becoming unanchored or price pressures becoming persistent.

“This shock does not therefore call for a monetary response to curtail demand as of now,” Malhotra said.

But he added that evidence of food, fuel and other input prices translating into broader inflation “may need policy tightening.”

MPC members warn about second-round inflation

The minutes show that the main concern among policymakers is not the current level of headline inflation alone, but whether higher input costs start feeding into wages, consumer prices and inflation expectations.

Economist and MPC member Saugata Bhattacharya warned that persistent high fuel prices could result in second-round inflation as higher input costs are passed through to consumers. He also flagged elevated household inflation expectations.

However, Bhattacharya argued that the RBI should wait for evidence of stronger aggregate demand and broader price pressures before taking its next policy action.

“I judge it appropriate to await evidence of a further pickup in aggregate demand and generalisation of price pressures before taking the next policy action,” he said.

MPC member and RBI executive director Indranil Bhattacharyya similarly warned that food and fuel shocks could become entrenched. He said inconsistent monsoon conditions and volatile oil prices could result in “sustained food and fuel shocks” that could eventually lead to generalisation of inflation.

At the same time, he noted that 69% of weighted CPI items were still recording inflation of 4% or less in June, suggesting that price pressures had not yet become sufficiently broad-based.

He said policymakers should watch for a generalisation of inflation and a de-anchoring of expectations before contemplating a rate hike.

Importantly, Bhattacharyya said the current pause should not automatically be interpreted as a prolonged pause.

“A pause preserves flexibility on timing; it does not necessarily imply an extended pause,” he said.

Oil, monsoon and trade remain key risks

Delhi School of Economics director and MPC member Ram Singh highlighted the impact of higher crude prices on domestic input costs. Brent crude, which averaged around $67 per barrel during January-February 2026, moved into the $80-90 range after spiking above $100.

Singh said the pass-through of higher global energy prices was already visible in commercial LPG, industrial raw materials, chemicals, rubber and plastic products.

He nevertheless pointed to resilient FMCG sales, vehicle and tractor sales, household credit, private capex and exports as evidence that domestic growth remains strong.

Nagesh Kumar, MPC member and director & chief executive, Institute for Studies in Industrial Development, also backed the status quo, saying there was currently no case for monetary policy action. He highlighted the risks from the West Asia conflict, the Strait of Hormuz, US trade policy and El Niño, while arguing that India's growth outlook remained resilient.

For now, therefore, the MPC remains unanimous on holding rates. But the August minutes indicate a more consequential debate over what comes next: Gupta sees a rate hike potentially emerging this year, Malhotra flags possible recalibration, and other members are focused on whether supply-side inflation becomes broad-based.

The next MPC meeting is scheduled for October 5-7, 2026.