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BUSINESS & TRADE AUGUST 14, 2026 | The Indian Eye 34

RBI Holds Steady as Economic Fundamentals

Strengthen Amid Inflation Risks

The central bank’s latest policy reflects growing confidence in India’s economy, even as

policymakers remain watchful of inflationary pressures and global uncertainties.

OUR BUREAU
New Delhi / Mumbai
he Reserve Bank of India’s
(RBI) decision to keep the repo
Trate unchanged at 5.25 per cent
was widely expected. Yet the signifi-
cance of the August Monetary Policy
Committee (MPC) meeting lies less
in the decision itself than in the mes-
sage accompanying it. Compared with
its June policy, the RBI has clearly
become more optimistic about the In-
dian economy. Growth expectations
have improved, inflation projections
have moderated, capital inflows have
strengthened and concerns over the ex-
ternal sector have eased considerably.
At the same time, the central
bank has wisely resisted declaring
victory over inflation. Instead, it has
retained its neutral stance, signalling
that while the economy is on firmer
footing, the inflation battle is not yet The central bank, headed by Governor Sanjay Malhotra, has wisely resisted declaring victory over inflation (File photo)
over. The policy therefore reflects
a careful balancing act—supporting The growth story also appears several emerging markets continue participants continue to expect rate
growth without compromising macro- increasingly encouraging. India’s to face currency volatility, India’s ex- hikes later in FY27, despite the RBI’s
economic stability. domestic demand remains resilient ternal buffers have become one of its current pause. Equirus anticipates a
The revised projections under- despite persistent global uncertainty. strongest macroeconomic assets. modest 25-basis-point increase during
line this shift in confidence. The RBI Manufacturing activity, as reflected in However, the optimism should the final quarter of the financial year if
has marginally raised its FY27 GDP Purchasing Managers’ Indices (PMIs), not obscure the risks that continue to inflation becomes more broad-based,
growth forecast to 6.7 per cent while continues to expand. Corporate earn- confront the economy. while Kotak expects cumulative tight-
lowering its inflation estimate to 5 per ings have generally remained healthy, The most immediate concern ening of 50 basis points during the sec-
cent. More importantly, core inflation, while merchandise exports have remains inflation. While headline in- ond half of FY27.
which strips out volatile food and fuel shown signs of recovery after a difficult flation has moderated, several factors For now, however, patience ap-
prices and is often viewed as a better period marked by slowing global trade. could still push prices higher over the pears to be the central bank’s pre-
indicator of underlying price pres- External indicators also paint a re- coming quarters. Consumer goods ferred strategy.
sures, has been revised down sharply assuring picture. According to Kotak companies have already indicated The RBI has successfully navigat-
to 4.3 per cent from 4.7 per cent. The Mahindra Mutual Fund, India is likely plans to raise prices in response to ele- ed a difficult period marked by global
first quarter inflation reading of 3.9 to post a balance of payments surplus vated input costs. Elara Capital warns trade disruptions, geopolitical uncer-
per cent also came in below the cen- during FY27, supported by stronger that these corporate price increases tainty and inflationary shocks. Its de-
tral bank’s earlier estimates, providing capital inflows and higher foreign di- could gradually feed into core infla- cision to remain data-dependent re-
additional comfort to policymakers. rect investment. Gross FDI inflows tion, especially if companies success- flects both prudence and confidence.
Brokerage firm Equirus right- rose to USD 30.7 billion in the first fully pass on higher costs to consumers. Rather than reacting prematurely to
ly notes that the RBI’s language has quarter, compared with USD 26.7 bil- The international monetary en- short-term fluctuations, it is allowing
become noticeably more balanced. In lion in the same period last year. For- vironment also deserves attention. incoming economic data to determine
June, Governor Sanjay Malhotra had eign portfolio investors also returned Both Kotak Mahindra Mutual Fund future policy.
warned that inflation could spread strongly during June and July, bring- and Elara Capital argue that future India’s macroeconomic funda-
through higher wages and changing ing net inflows of over USD 7 billion. actions by the US Federal Reserve mentals have undoubtedly improved.
expectations. In August, that concern These inflows have helped could eventually influence RBI policy. Growth remains among the strongest
has been toned down. The RBI now strengthen India’s external posi- If the Fed resumes monetary tighten- in the major economies, inflation has
believes there is “little sign of gener- tion. Foreign exchange reserves have ing, the RBI may need to maintain eased from recent highs, foreign in-
alisation” in inflationary pressures, recovered to nearly USD 693 bil- an adequate interest rate differential vestment is returning and external bal-
suggesting that price increases remain lion, providing a substantial cushion to prevent disruptive capital outflows ances have strengthened. These are
confined to specific sectors rather against external shocks and reducing and protect financial stability. significant achievements in an increas-
than becoming economy-wide. pressure on the rupee. At a time when This explains why several market ingly uncertain global environment.

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