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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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