Most members of the Reserve Bank of India's Monetary Policy Committee (MPC) saw little justification for a pre-emptive change in interest rates at the June policy review, according to the minutes of the meeting released on Friday. The committee unanimously voted to keep the repo rate unchanged at 5.25% and retain the neutral policy stance.
Caution Amid Global Uncertainty
The MPC members argued that heightened uncertainty around the West Asia conflict, supply chain disruptions, and monsoon risks warranted a cautious 'wait-and-watch' approach. Several members stressed that the inflation shock remains largely supply-driven and its persistence is still uncertain.
Views of External Members
External member Dr. Nagesh Kumar stated that 'prudence requires waiting for greater clarity to emerge on the impact before any monetary policy response.' He emphasized the need to monitor the evolving geopolitical situation in West Asia and its implications for India's macroeconomic outlook, especially growth-inflation dynamics.
Saugata Bhattacharya noted that the economy faces 'multiple overlapping geo-economic shocks' and argued that 'risk management is now the most sensible approach to monetary policy responses.' He added that despite concerns over inflation, he did not see 'material signals of economic overheating' and that maintaining the current repo rate was 'likely to have the lowest economic cost.'
Arguments Against Pre-Emptive Action
Executive Director Indranil Bhattacharyya argued against a pre-emptive response to rising prices, noting that while wholesale inflation has surged, policymakers need to assess how much of that feeds into consumer inflation. He stated, 'While demand-pull inflation may call for pre-emptive action to effectively anchor inflation expectations, cost-push inflation induced by supply shocks warrants greater caution - gradualism - in policy making.'
Deputy Governor Poonam Gupta similarly backed a pause, saying she did not see a case for tightening policy when growth is expected to slow and inflation has not yet become entrenched. She said, 'It would be prudent to adopt a wait and watch approach rather than make an early or preemptive policy pivot.'
Economic Projections
The MPC's June projections showed GDP growth for 2026-27 slowing to 6.6% from 6.9% projected earlier, while inflation was revised upwards to 5.1% amid higher oil prices and monsoon-related risks. Committee members broadly concluded that waiting for more clarity on the duration of the West Asia conflict and its economic impact was preferable to acting prematurely.
